Paul Bloxham: HSBC chief economist on Australia's Reserve Bank holding the Official Cash Rate for seventh time in a row

The Australian Reserve Bank has held the cash rate at 4.35 percent after its latest board meeting, citing concerns about inflation.

This  seventh consecutive hold was widely tipped by economists - and they haven't ruled out additional increases either.

HSBC chief economist Paul Bloxham outlines his predictions for when the economy will turn around and give homeowners some reprieve.

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Episode Transcript

Speaker 1 (00:00):
So the Reserve Bank in Australia held its official cash
rate at four point three five percent for the seventh
time today in a row. Of course if the FED sorry,
and the Reserve Bank here in New Zealand have both
dropped their rates in recent times, but the RBA said
it will be sometime yet before inflation is sustainably in
the target range. Paul Bloxham is agspc's chief economist. Hey, Paul, great, Paul, listen,
you tell me if I'm wrong. But I thought that

(00:21):
you guys with headline and inflation are expected to very
shortly actually be within the margin, aren't you.

Speaker 2 (00:28):
Headline inflation is going to fall, and probably tomorrow when
we get the CPI indicator this is not the CPI
that it's our new timely monthly version. It's going to
show headline inflation falling quite strongly actually, But this is
not the key. The key is that headline inflation is
likely to come down simply because the government has given
energy subsidies, they've lowered people's electricity bills, and so that

(00:51):
doesn't really constitute a sustainable fall and inflation. That's a
policy measure, and so the RBA has made it absolutely clear,
and today they were very very clear in this statement
that they are going to focus on the underlying measures
of inflation, not the headline rate of inflation, because that's
being affected by these temporary policy changes, and so it'll
be key to watch out for what the underlying measures do.

(01:11):
But our take is the underlying measures that the trimmed mean,
for example, is still are still going to be well
above where the RBA is comfortable, well above the RBA's
target band. And we saw that today in the tone
of what they delivered, they remained on hold. They talked
about the idea that they've not ruled anything in or
anything out, and they've noted that near term rate cuts
are really not on the cards at the moment.

Speaker 1 (01:32):
Does it get awkward for Michelle Bollock to have the
FED cutting by fifty, the Reserve Bank cutting maybe even
by fifty at some stage at herders sitting.

Speaker 2 (01:39):
There, It certainly raises the bar. It raises the bar
for them to think about where they're at and say
to themselves, why are we different? You know, why is
Australia in a different spot. And the argument we've been
putting forward for a while is Australia is in a
different spot. We're in a different spot for a number
of reasons. One of them is that the RBA didn't
lift interest rates as much as everyone else. I've talked

(02:01):
about this all year along with you. I know, you
know they did four hundred and twenty five basis points
of hiking, whereas the FED did five twenty five. The
arbiens they did five twenty five, just did less, They
did less tightening, and so one of the consequences is
they haven't had quite as much disinflation. And then the
other really big factor is that the supply side productivity
has been really quite quite quite weak, quite weak in Australia,

(02:22):
and so we're not getting as much disinflation. We do
look different to everyone else, but they're going to with
other central banks now cutting rates across the world, it's
going to be that bar is higher for them to
convince themselves continually that we are different. We don't think
rate cuts are coming through for a while though. We
think rate cuts aren't coming into a well into twenty
twenty five in Australia.

Speaker 1 (02:40):
What do you think about the feed having cut by
fifty basis points and the impact it's going to have
on the Reserve Bank in New Zealand at the next decision.

Speaker 2 (02:47):
Well, I think the first thing to take from it
is that, actually, this is what a soft landing looks like.
You know, the reason why the Fed's been able to
cut this because inflation's coming down quite quickly and they
feel that they can deliver more support, and they've done that.
The economy is actually the US economy is still got
positive momentum, growth is still holding up pretty well. You
want to be able to cut interest rates before growth
slows down to prevent it from slowing down by very much.

(03:10):
This is, again, what a soft landing looks like. I
don't think it's a bad story. I think it's a
good story. I don't think it has that much bearing
on the RBNZA. I think the RBNZ, like the RBA,
gets to run its own race and said it's policy
based on domestic conditions. And I think the RBNZ will
cut rates further twenty five in the next meeting twenty
five at the one after. We think that the RBNZ

(03:30):
has broad inflation down enough to be able to continue
to ease its policy setting a lot like the FED,
but not necessarily because of the FED Yeah.

Speaker 1 (03:37):
Paul, Hey, thank you. As always, really appreciate your take.
That's Paul Bloxham.

Speaker 2 (03:41):
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