Paul Bloxham: HSBC chief economist on the Australian Reserve Bank keeping rates on hold

The Australian Reserve Bank will keep the Official Cash Rate on hold at at 3.6 percent.

The RBA's Governor, Michele Bullock, says Australia is in a 'difficult position', but they're committed to addressing inflation.

HSBC chief economist Paul Bloxham explained further.

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:16):
Now. The Australian Reserve Bank has held the official cash
rate at three point six percent. As we told you earlier,
the move was expected after the bank dropped the rate
by twenty five basis points in August. Paul Bloxham is
HSPECIES Chief Economist and with us HI Paul good eight.
I see it's taken to some people by surprise who
were expecting a cat.

Speaker 3 (00:35):
Now. I think this is pretty fairly expected that the
RBA was going to be on hold today. The market
was fully comfortable around that that. The real discussion today
is not really about what was going to happen today,
but rather what sort of guidance the RBA is giving
about what they might do next and whether there are
further interest rate cuts yet to come. And I think

(00:55):
on that front, the RBA was a little bit more
hawkish or indicating that the RBA is just a little
bit more concerned that inflation might not continue to fall
towards the midpoint of its target fan than they were,
perhaps obviously so so that that's the main thing that
I think the market's taken from today that you know,
they're on hole today and whether there's more cuts to
come is sort of where the debate is or how

(01:19):
many of those rate cuts are yet to come? Will
they cut in November, I guess is the big question.

Speaker 2 (01:23):
Okay, what are they seeing in inflation?

Speaker 3 (01:26):
Well, we got this reading last week of this sort
of indicator, this partial indicator, the monthly CPI indicator, that
was a little bit higher than the market had expected
for August, and that's been where a lot of the
focus of the discussion has been. Is that giving you
a clear signal that actually inflation might now be starting
to look a bit more persistent, or is that indicator

(01:48):
which is actually really quite noisy and quite volatile, you know,
just a partial indicator. And so so you know, the
thing for the RBA is the last reading of the
main measure they watch around at two point seven percent,
which is very much in there two to three percent
target band, of course, but they need it to really
keep heading towards the midpoint, towards two and a half.

(02:09):
And if it doesn't keep heading towards, then maybe they
won't be able to deliver much more easing. And if
it does you know, head towards it. Then then we
might get a couple more we might get a little
bit more easy from the RBA. But we're getting close
to the end. It does seem like the RBA has
done enough to get the economy to be in an upswing.
Growth has picked up pace, you know, the consumers starting
to spend a bit more. Australia is in a modest

(02:31):
growth up swing.

Speaker 2 (02:32):
Yeah, Paul, what are you expecting from the rbn Z
in next week?

Speaker 3 (02:35):
Well, that is going to be very interesting. I mean,
I think they're going to cut and I think that's
fairly uncontroversial that the question is going to be how
much do they, you know, take from that really weak
judy p print we got for the the last second
quarter one and do they feel the need to move
even more? And so, you know, we think that that

(02:57):
was quite a hefty surprise to the downside, and you know,
the RBNS that had already been talking about the idea
of maybe cutting a couple more times before the end
of the year. So our leaning is that it's most likely,
we think the albiens that will probably deliver fifty basis
points next week, that they'll cut more because that print
was very weak. It surprised them to the downside. They'd

(03:19):
already be indicating that they were going to be cuts
coming anyway, so we think that's likely. We think we're
going to get the Abienz cutting delivering a bigger cut
next week.

Speaker 2 (03:27):
Look, I stand to be corrected, but I think I
sall be in Z saying today that they are expecting
to hit two point two five in the OCR by
Christmas time. Do you think they're on the money there?

Speaker 3 (03:38):
That's our view too, So we think they go fifty
basis points next week, and then they go another twenty
five basis points in November, and the cash rate would
be yes down at two twenty five by the end
of the year. Keeping in mind, you know, they've had
this big downside surprise to GDP, so growth is weak
and it's clear the economy is not quite on the
right pathway. And I think the other thing, in terms

(03:59):
of that November meeting, that's the second one. There's a
big gap between the November meeting and a February meeting,
So if they still feel like they need to do
a bit more even after cutting next week, that's how
we get there. So yeah, we do think there's going
to be quite a bit more easy coming through from
the abn Z pretty soon.

Speaker 1 (04:13):
Yeah.

Speaker 2 (04:13):
Listen on that gap, it seems to be firming up
as a bit of a discussion of topic discussion here,
a topic of discussion as to whether that there should
be that bigger gap between the end of the year
and the start of the year for them.

Speaker 3 (04:25):
What do you think, Oh, I think it is quite
a large gap between the last meeting for the year
and the one that comes along long in February, and
so you know there's a question there about whether the
timing is right, whether whether something should happen a bit
more so a bit a bit sooner in between. That'll be,
of course for the rbn Z to work out, especially
with the new governor governor arriving in December.

Speaker 2 (04:47):
Yeah, you like the cut of her jib.

Speaker 3 (04:50):
I think that, you know, it's a very highly qualified
person to come and to come and run and run
the Central Bank.

Speaker 2 (04:58):
Absolutely, Yeah, Paul, thank you very much, as always appreciated.
Paul Blocksham hspecies Chief Economist.

Speaker 1 (05:04):
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