Latest / Best of Business / Paul Bloxham: HSBC Chief Economist on the Australian Reserve Bank leaving rates on hold for 2024

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Paul Bloxham: HSBC Chief Economist on the Australian Reserve Bank leaving rates on hold for 2024 · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalk Z'B. Follow this
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  Speaker 2: The Australian Reserve Bank has ended the year where it began,
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  Speaker 2: with a cash rate of four point three five percent,
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  Speaker 2: disappointing many, no more so than Albanezi, who wants to
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  Speaker 2: get re elected. The bank softened its language a little bit,
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  Speaker 2: saying the board had gained some confidence that inflation was
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  Speaker 2: heading back to target. Paul Bloxham is the HSBC Chief
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  Speaker 2: executive in Sydney. Paul, good evening, Thanks for being with me.
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  Speaker 2: Good a great to have you on the show. Let's
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  Speaker 2: start with what the bank was saying. What was the message.
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  Speaker 3: Well, the message was that where they're making progress, inflation
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  Speaker 3: is heading towards their target, albeit very slowly. It's a
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  Speaker 3: very slow grind for getting core inflation, the underlying measures
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  Speaker 3: that the RBA focuses on back to the RBA's target.
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  Speaker 3: And so because it's a slow grind, they didn't cut
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  Speaker 3: interest rates today. They didn't feel that they could do that.
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  Speaker 3: But they are starting to hint that they're getting closer
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  Speaker 3: and closer and just a bit more confident that inflation
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  Speaker 3: will get back to where they need it to be,
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  Speaker 3: and so the next move is more likely to be
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  Speaker 3: down than up. Now, keep in mind, not long ago
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  Speaker 3: the RBA was still talking about having options in both directions.
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  Speaker 3: They were talking about not ruling in anything or ruling
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  Speaker 3: out anything, and they've dropped that line of phrasing and
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  Speaker 3: they're starting to talk more about the idea that rates
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  Speaker 3: are likely to come down but not quite yet. And
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  Speaker 3: then in terms of when, well it's likely to be
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  Speaker 3: in twenty twenty five. Obviously they haven't got another meeting
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  Speaker 3: this year. But the question then is sort of what
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  Speaker 3: is the timing in twenty twenty five And that bit
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  Speaker 3: is a bit harder because there's so much yet to happen,
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  Speaker 3: and there's so much data flow to happen even before
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  Speaker 3: the next RBA meeting, which is now ten we'll still
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  Speaker 3: ten ten weeks away in late February.
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  Speaker 2: To be fair to the RBA from our perspective, I mean,
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  Speaker 2: we went much higher and earlier than they did, right.
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  Speaker 3: Yes, So the approach that was taken to dealing with
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  Speaker 3: the high inflation challenge that both New Zealand and Australia
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  Speaker 3: base both countries faced the same challenge. The approach was
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  Speaker 3: very different across both sides of the Tasman. So as
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  Speaker 3: you say the RBNZ had lifted interest rates early, they
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  Speaker 3: lifted them a lot more five hundred and twenty five
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  Speaker 3: basis points, went hard, pushed the economy into a downturn.
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  Speaker 3: You've been in a downturn for two years, and that
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  Speaker 3: got inflation down quite quickly, or quicker at least. And
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  Speaker 3: so because inflation came down enough after being in a
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  Speaker 3: downturn for two years, the RBNZ has been able to
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  Speaker 3: start cutting rates. And they've done it, you know, quite
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  Speaker 3: a substantial amountments cut one hundred and twenty five basis
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  Speaker 3: points already. The RBA took the slow road. They lifted
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  Speaker 3: rates by left. They intentionally prioritized trying to stay close
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  Speaker 3: to full employment and to deliver a soft economic landing
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  Speaker 3: and not have a recession. And in doing that, of course,
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  Speaker 3: the trade off was always going to be that inflation
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  Speaker 3: would fall more slowly, and so it has. Inflation hasn't
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  Speaker 3: yet gotten down to where the RBA is comfortable, and
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  Speaker 3: we're sitting here and the RBA still hasn't cut interest rates,
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  Speaker 3: and so yeah, very different pathways to sort of achieving.
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  Speaker 3: They're mandates from both the RBNZ and the RBA.
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  Speaker 2: Whose was the better approach or is it too early?
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  Speaker 2: Is it too early to tell, because I mean, you
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  Speaker 2: look over here, and yes, we are dropping our rates,
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  Speaker 2: and we're dropping them quicker than you can you know,
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  Speaker 2: your neckers after a night out going home side. But
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  Speaker 2: you know, but over here it's like trying to revive
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  Speaker 2: a corpse. I mean, the economy feels so beaten and
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  Speaker 2: downtrodden that no matter how low they dropped the rates
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  Speaker 2: at the moment, we're going to take a while to
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  Speaker 2: dig our way out of this.
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  Speaker 3: So two things. I think it's hard to like determining
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  Speaker 3: which one's a better approach is really it really depends
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  Speaker 3: on how much weight you put on how much preference
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  Speaker 3: you've got to keeping full employment everyone in a job,
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  Speaker 3: versus keeping getting inflation down. So you know, the RBNZ
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  Speaker 3: decided the priority was getting to get inflation down and
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  Speaker 3: to get it down quickly, and that was the way
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  Speaker 3: they approached it. But the cost has been that the
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  Speaker 3: unemployment rate has gone up a lot more. It's gone
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  Speaker 3: from three point two to four point zero percent. The RBA,
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  Speaker 3: their choice was well, actually know, we want to keep
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  Speaker 3: the unemployment fairly low, and so it's gone from three
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  Speaker 3: and a half to four point one. But of course
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  Speaker 3: that has meant that inflation has come down more slowly,
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  Speaker 3: so we've had more inflation for more persistent inflation for longer.
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  Speaker 3: In New Zealand you've gone the other direction. So it
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  Speaker 3: really depends on where which you prioritize. I'm a bit
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  Speaker 3: more confident about in New Zealand than you're describing. I
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  Speaker 3: think the primary thing that's been constraining the economy really
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  Speaker 3: getting the slow down has been the high interest rates,
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  Speaker 3: and now that they're going quickly in that, you know,
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  Speaker 3: down in that direction, I think it's going to turn
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  Speaker 3: around quite quickly. I think twenty twenty five you're going
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  Speaker 3: to get quite a recovery in growth in New Zealand
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  Speaker 3: as interest rates come down and households respond and the
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  Speaker 3: having market responds and so on. So we'll see. But
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  Speaker 3: that's my forecast for New Zealand, all.
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  Speaker 2: Right, Paul Brilliant. And for Australia, the swaps are saying
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  Speaker 2: it's a split chance of a drop in February, Well,
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  Speaker 2: that's right about that.
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  Speaker 3: For February, our central cases, they won't cut till the
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  Speaker 3: second quarter of next year, so April or May. But well,
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  Speaker 3: there's a lot lot of data yet to come between
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  Speaker 3: now and then, and so we'll move towards it and
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  Speaker 3: see what happens. But rate cuts in twenty twenty five
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  Speaker 3: seem likely brilliant.
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  Speaker 1: Paul.
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  Speaker 2: Great to have you on the show as always, Paul
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  Speaker 2: Block some Hspecies, Chief economist out of Sydney.
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