Paul Bloxham: HSBC chief economist ahead of tomorrow's expected cuts to the OCR

The Reserve Bank is set to deliver their final Monetary Policy Statement for 2025 tomorrow, and reports indicate the OCR will be cut further.

Economists are widely expecting the OCR to drop 25 basis points to 2.25  percent - with room for further cuts down the line. 

HSBC chief economist Paul Bloxham speculated further.

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Episode Transcript

Speaker 1 (00:09):
You're listening to a podcast from News Talk zed B.
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Speaker 2 (00:16):
Paul Bloxham, AGSBC Chief Economists with us right now, Hey, Paul.

Speaker 3 (00:21):
Good A.

Speaker 2 (00:22):
So tomorrow, twenty five basis point cut. That's it, isn't it?

Speaker 3 (00:26):
I think so. I think they're going to cut by
twenty five basis points tomorrow. I think the key thing
to watch out for is what they have to say
about it and where they're at. And I think they're
going to still they're going to cut by twenty five
and I think they're going to say that they will
still leave the door open to the possibility that they
might have to cut a little bit further yet. So
I think it's still the case that they're focused on

(00:47):
the weak growth story rather than worried about inflation pressures
at this point, and so you know, leaving the door
open trying to get the economy to get going, particularly
ahead of you know, they've got a three month gap
now until the next meeting until February, and of course
a new governor that's arriving at the RBNST as well,
so trying to get the economy to turn around ahead
of that. I think that's what the aim will be.

Speaker 2 (01:09):
What are you expecting for the economy next year, Paul,
because I know that we're I mean, I saw your
last production, correct me if I'm wrong, was about two
and a half percent or thereabouts, and the other banks
are calling around about that as well, up to three percent.
But the numbers that we're seeing in the data that
we're seeing just makes you feel a bit nervous, doesn't it.

Speaker 3 (01:27):
Yeah, it does make me nervous. We do have a
number which is a bit over two percent in terms
of growth running into next twenty twenty six, and I
think you know, the challenge has been that it has
taken longer for growth to pick up than we expected.
We expected this year might be a bit better than
it was in the end, but it has been weaker.
But I think the two key mechanisms are still there
that should get things going. The first one is interest

(01:50):
rates have come down a long way, and of course
they've come down even further and as I say, likely
to come down a bit further tomorrow again, and that
should start to feed through to a bit more consumer
spending and some support for the housing market as well.
And the other one is that dairy and meat prices
have been very high, so the agricultural sector has done
very well and those payouts are starting to arrive and
that income is starting to slosh into the economy. And

(02:12):
although it's mostly in the South Island, I think some
of it will start to feed through to the broader
economy as we run through next year as well. I
don't think this is a strong growth profile, but this
is a recovery after too what will turn out to
have been two quite weak years in terms of New
Zealand's economic performance. So two years of economic weakness followed
by a modest recovery is what we've got factored in

(02:34):
to the story.

Speaker 2 (02:34):
Have you factored in the possibility that everything that's freeing
up on account of the official cash rate coming down
is simply being hoovered up by increasing rates, so actually
you don't end up with that much disposable cash.

Speaker 3 (02:47):
I think this is still feeding through. I think the
main thing that we've seen that's been quite slow is
people fixing shifting off their fixed rate mortgages and rolling
over those fixed rate mortgages to lower rates, and that's
been one of the things that has slowed things down.
I think you know, if you sort of look back
and think about what else has held up the recovery,
I mean, I think it's taken you know, the fact

(03:08):
that you you had such a big housing cycle, house
price cycle, you know, a forty five percent rise in
house prices through the pandemic and then sort of an
almost twenty percent decline in house prices, so a lot
more I think people you know had bought in and
are still facing house prices that are lower than when
they purchased them. And I think that's probably been something
that's that's been weighing on New Zealand more than we

(03:29):
anticipated earlier in the year. So that's that's one of
the features. And then as a consequence of the weaker economy,
of course, you've seen this outward migration story, which is
weighed on population growth. So there's quite a bit that
has to turn around. But I think the big mechanisms
for getting it to turn around are there. They're working,
you know, with lower interest rates and as I say,

(03:50):
high high, high commodity price.

Speaker 2 (03:52):
Yeah, I mean, I feel like I should clarify what
I meant by rates was council rates, because obviously we
could talk about any kind of rates, But I feel
like that sucked up a heap of our disposable income.
But I mean, you'll bang on. You know, the wealth
effect will be part of it. So when you take
everything into account, are you still sticking with your projection
of two and a half?

Speaker 3 (04:10):
So I will have a bit over two percent running
into next year. And as I say, I think the
main way I'd characterize it is after having last year
where growth GDP went backwards, and this year where on
average it's not going to have grown very much at all.
You know, if two years of weakness are followed by
growth of a bit over two percent, that's you know,
that's still that's that's just a modest recovery. When you

(04:32):
think about it, it's not it's not it's not a
strong picture. It's just a it's just a recovery.

Speaker 2 (04:36):
Yeah, brilliant. Hey listen, Paul, always brilliant to talk to you,
and we'll talk to you again very shortly. That's Paul Bloxham,
HSBC's chief economist.

Speaker 1 (04:46):
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