Latest / Best of Business / Paul Bloxham: HSBC chief economist on whether the RBA is set to lift the OCR again

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Paul Bloxham: HSBC chief economist on whether the RBA is set to lift the OCR again · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalk ZB. Follow this
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  Speaker 1: Paul Bloxham, HSBC Chief Economist is with us now. Hi, Paul.
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  Speaker 2: G'day.
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  Speaker 1: Okay, so the RBA is going up next week and
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  Speaker 1: then once thereafter again and then that's it?
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  Speaker 2: We think they're going to have to lift interest rates
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  Speaker 2: twice more. Yes, inflation is still too high in Australia.
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  Speaker 2: Growth is still running a little above what the speed
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  Speaker 2: limit would allow. And we really don't think the RBA
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  Speaker 2: has got too many choices at this point in time.
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  Speaker 2: And so, I mean, the challenge here is that in
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  Speaker 2: doing that, we do think they'll lift interest rates next week.
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  Speaker 2: We do think they'll lift again in November. They're going
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  Speaker 2: to weaken the economy more, of course. And in particular,
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  Speaker 2: they're going to weaken the housing market. We've already got
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  Speaker 2: house prices that are falling reasonably steeply. And so there
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  Speaker 2: is a question about just how much weaker the economy
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  Speaker 2: will get. We think it will probably get close to
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  Speaker 2: stalling around the turn of the year to try and
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  Speaker 2: get inflation down. And so that's a pretty challenging spot,
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  Speaker 2: a tricky one for the RBA to deliver. But I
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  Speaker 2: think that's where we are at the moment.
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  Speaker 1: So I heard a prediction here in New Zealand this morning,
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  Speaker 1: which is that our OCR is going to hit about 4.5%,
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  Speaker 1: somewhere between 4 And 4.5%. And then it's really late
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  Speaker 1: next year through to early 28. That's the toughest for
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  Speaker 1: people paying mortgages. Would you agree with that?
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  Speaker 2: Well, we don't have quite as much tightening in as
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  Speaker 2: what you describe. We've got the cash rate, the OCR
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  Speaker 2: in New Zealand going up another three times, going up
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  Speaker 2: to 3.5%. by the early part of next year. We've
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  Speaker 2: had that view actually since late last year, so we
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  Speaker 2: haven't changed anything. And we think that will be close
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  Speaker 2: to neutral and probably sufficient to get the economy to
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  Speaker 2: slow down enough and get inflation back on track. But certainly,
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  Speaker 2: if it were to go further than that, as you're describing,
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  Speaker 2: it would make it even tougher. But I think the
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  Speaker 2: main message is that people should gear up for the
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  Speaker 2: fact that interest rates are going up further. This is
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  Speaker 2: not just a local phenomenon. We're talking about this in
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  Speaker 2: the context of Australia and New Zealand, but globally, obviously,
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  Speaker 2: the Federal Reserve's lifting interest rates. We've seen the ECB
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  Speaker 2: do it a couple of times. We've got the Bank
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  Speaker 2: of Japan going. We think the Bank of England will lift.
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  Speaker 2: It's a global phenomenon. Inflation is proving to be more persistent,
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  Speaker 2: and that's something that central banks are needing to respond to.
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  Speaker 1: Yeah, which is really not something we want to be
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  Speaker 1: dealing with right now after everything we've been through. What
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  Speaker 1: did you make of the reaction to the US Fed hike?
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  Speaker 2: I think it was appropriate, which is that, you know,
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  Speaker 2: the Fed has got a challenge with inflation that's been
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  Speaker 2: stubbornly elevated. They've also got an economy that's actually growing
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  Speaker 2: pretty solidly. The US economy is really growing quite solidly.
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  Speaker 2: So it makes sense that financial conditions need to be
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  Speaker 2: tightened more. And so they delivered and with some indication
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  Speaker 2: that actually there probably will be more tightening yet to come.
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  Speaker 2: We think they'll probably lift rates again this year. And
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  Speaker 2: the other thing to keep in mind is we're talking
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  Speaker 2: a lot about central banks and what they're doing with
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  Speaker 2: interest rates. But we've seen the longer end, the bond
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  Speaker 2: market interest rates at the longer end, they've already risen.
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  Speaker 2: They're already at higher levels. They're already indicating that the
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  Speaker 2: market thinks we need that the financial conditions should be tighter.
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  Speaker 2: And that's about some of that tightness is already being delivered.
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  Speaker 1: Yeah, brilliant stuff. Paul, it's always good to talk to you, mate.
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  Speaker 1: We'll talk to you again soon. Paul Bloxham, HSBC Chief Economist.