Latest / Best of Business / Paul Bloxham: HSBC chief economist on the Reserve Bank cutting the OCR by 25 basis points

Transcript

Paul Bloxham: HSBC chief economist on the Reserve Bank cutting the OCR by 25 basis points · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk zed B.
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• 0:17
  Speaker 1: Here the do for Clans.
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  Speaker 2: Paul Bloxom, hspc's chief economists in Sydney's with us A
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  Speaker 2: Paul got eight. Mate, we haven't spoken to you since
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  Speaker 2: the big OCR call last week. What did you make
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  Speaker 2: of that?
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  Speaker 3: Well, it was a big change, wasn't it. You know
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  Speaker 3: what we had in mind that the RB and Z
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  Speaker 3: would likely be cutting this year. In fact, we thought
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  Speaker 3: they might cut in October, but we didn't quite think
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  Speaker 3: it would be quite so soon. And most of that
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  Speaker 3: came down to us listening to what they'd been saying.
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  Speaker 3: They told us in May they were really worried about
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  Speaker 3: domestic inflation, but the time we got to the August meeting,
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  Speaker 3: of course they were cutting because they are more worried
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  Speaker 3: about other things. So look, the story is a good
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  Speaker 3: news story though in the end, you know, inflation is
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  Speaker 3: coming down, and so the RB and z's got an
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  Speaker 3: opportunity to start taking their foot off the break And
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  Speaker 3: obviously there are other central banks around the world that
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  Speaker 3: are doing that as well, and so that's a good
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  Speaker 3: thing that there's going to be a bit more support
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  Speaker 3: coming through to the economy would lose some monetary policy.
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  Speaker 2: What do you reckon? They go, what was going on there?
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  Speaker 2: Were they misreading the economy or were they bluffing?
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  Speaker 3: Oh look, I Ford guidance has got lots of different functions,
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  Speaker 3: you know, And that's what they were doing, right. They
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  Speaker 3: were telling us what they thought they were going to
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  Speaker 3: do with their policy rate. And one of the functions
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  Speaker 3: is to manage expectations and sort of set the sort
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  Speaker 3: of groundwork for what they want people to think they're
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  Speaker 3: going to be doing and how that and that can
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  Speaker 3: deliver tighter financial conditions. So there could be an element
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  Speaker 3: of using that tool to tighten up and ensure that
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  Speaker 3: inflation came down. The other thing that it's supposed to do, though,
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  Speaker 3: is it supposed to give guidance to market as to
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  Speaker 3: how the central bank responds to data when it comes out.
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  Speaker 3: And so that's the challenge. The challenge is that it didn't.
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  Speaker 3: It didn't necessarily you know, most of the economists in
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  Speaker 3: the consensus, we're thinking that they wouldn't cut because they
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  Speaker 3: were listening to what was said back in May. So
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  Speaker 3: there are trade offs with using Ford guidance, and I
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  Speaker 3: think that's a question that's still yet to be answered.
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  Speaker 3: But I think the main story here, as I say,
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  Speaker 3: is a good Oneations coming down, interest rates are coming
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  Speaker 3: down as well, and that means that you know, that's
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  Speaker 3: going to give a bit more support to the economy.
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  Speaker 2: And so how low do you think this ocr goes
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  Speaker 2: in the But I don't know. A couple of the
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  Speaker 2: next couple of years.
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  Speaker 3: Well, we now think that, well, we think that the
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  Speaker 3: RB and Z will probably deliver a couple of more
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  Speaker 3: cuts because twenty five basis point isn't very much this year.
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  Speaker 3: So we've got two more cuts this year, and then
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  Speaker 3: we've got another four penciled in for next year. So
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  Speaker 3: that would take the cash rate all the way back
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  Speaker 3: down to somewhere that's sort of closer to neutral, maybe
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  Speaker 3: a roundabout or a little bit below their neutral setting.
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  Speaker 3: So we haven't got in mind that we're going all
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  Speaker 3: the way back down to the levels we were pre pandemic,
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  Speaker 3: or the levels we were even through the pandemic. The
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  Speaker 3: world is a different place now where interest rates are
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  Speaker 3: a bit higher and inflation is a bit stickier. But
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  Speaker 3: we do think there's a fair bit of relief that's
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  Speaker 3: going to come through fairly quickly, and that's going to
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  Speaker 3: happen in New Zealand. But you know, today we got
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  Speaker 3: reminded again by the RBA in their minutes that the
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  Speaker 3: RBA is still quite some time away from thinking that
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  Speaker 3: they can deliver rate cuts here in Australia.
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  Speaker 2: Yeah, so those those minutes that were released showed that
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  Speaker 2: they had considered right hiking, but they decided instead that
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  Speaker 2: the best option was just keep it steady and higher
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  Speaker 2: for longer. Is this them trying to avoid a full
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  Speaker 2: on recession?
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  Speaker 3: Well, I think this has been the plan all the
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  Speaker 3: way along. They wanted to. They didn't lift interest rates
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  Speaker 3: quite as much as everyone else. They did less, for
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  Speaker 3: example than the Arby and Dead and the FED and
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  Speaker 3: the Bank of England. And that strategy was to bring
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  Speaker 3: inflation down. Of course they need to bring inflation down,
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  Speaker 3: it was very high, but try to maintain as close
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  Speaker 3: to full employment as possible along the way, not deliver
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  Speaker 3: a hard landing. Well they've gotten both those that the
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  Speaker 3: economy has slowed, but it's not had a hard landing.
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  Speaker 3: We haven't had a recession in Australia. And inflation, well
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  Speaker 3: it's not coming down quite very quickly. It's still taking
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  Speaker 3: time to fall, so that leaves them without the option
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  Speaker 3: of being able to cut rates, and as you say,
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  Speaker 3: really quite something that they were talking about possibly lifting
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  Speaker 3: rates early in August, where of course other central banks
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  Speaker 3: are busy cutting them at the moment. So look, we've
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  Speaker 3: held this fore all years. You know.
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  Speaker 1: A bit.
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  Speaker 3: You know that we don't think the RBA is cutting
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  Speaker 3: this year, that rate cuts are more proposition to twenty
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  Speaker 3: twenty five, and a lot of that is to do
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  Speaker 3: with the strategy that the RBA has taken. They've tightened less,
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  Speaker 3: slowed the economy less, inflation's coming down more slowly.
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  Speaker 2: Good stuff, Paul, it's good to talk to you, and
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  Speaker 2: we'll talk to you again very shortly. Look after yourself.
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  Speaker 2: That's Paul Blocks and the Ages SPC chief economists in Sydney.
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