February 18, 2025 • 4 mins
There's finally some relief for Australian homeowners, as the RBA lowers interest rates for the first time since 2020.
It held the cash rate at 4.3 percent for more than a year as post-pandemic inflation slowly cooled - but it slashed the OCR by 25 basis points to 4.1 percent.
HSBC chief economist Paul Bloxham says inflation is coming down, but it's still nowhere near low enough.
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Speaker 1 (00:00):
Some interest rate relief for Ossie's. Finally, the RBA today
cutting the official cash rate for the first time since
twenty twenty. Governor Michelle Bullock, explaining the quarter percent cut
to four point one percent.
Speaker 2 (00:10):
It's clear that higher interest rates have been working as anticipated,
restricting economic activity and putting downward pressure on inflation. The
Board judges it's time to reduce a little bit of
that restrictiveness. But we cannot declare victory on inflation just yet.
It is not good enough for inflation to be back
in the target range temporarily. The Board needs to be
(00:31):
confident that is returning to the target range sustainably.
Speaker 1 (00:34):
Paul Blocks from HSBC good evening, Hey, good to have
you back. Congratulations you picked that.
Speaker 3 (00:40):
Right, we did, We got that one right, So I'm
definitely happy about that. You know, the cut was part
of it, but the real interesting part was just how
cautious they were, how much they're really giving guidance that
this is one move. But actually they're going to need
more evidence of inflation continuing to fall before they we'd
consider cutting again. So we don't think that we're thinking
(01:03):
that they're going to cut anytime soon again, that it's
going to be quite a few months before we get
another cut from the.
Speaker 1 (01:07):
RBA too, really to celebrate. I mean, if you look
at we were speaking to Mariol's there Ossie correspondent earlier.
He said, it's about one hundred dollars is it? One
hundred dollars a fortnight, if you know, on your average mortgage.
And when the rates went up it was, you know,
fifteen hundred dollars whak to your wallet. So it's come
back a little bit, but it's not you know, it's
not game changing.
Speaker 3 (01:25):
Well that's right. So the RBA lifted its cash right
by four hundred and twenty five basis points. They stopped
doing that in November of twenty twenty three. That was
the last hike that was that arrived, and today they
took back twenty five basis points at that four hundred
and twenty five. So, you know, it's as the governor
said in the recording you just played, you know, monetary
policy is still restrictive. It's just a little bit less restrictive.
(01:47):
And they feel they can make this move because inflation
is coming down. But then it's still not back where
they need to be in terms of inflation. It's still
not quite at the target. And the other thing, of
course for Australia is not only is the you know,
the inflation coming down, but we're doing this within a
labor market that's still very strong. The unemployment rate is
still very low. It's coming down a little bit in
(02:09):
the last couple of months and the last few months
as well, and so we're sort of close to full employment.
If you've got a fully employed economy and inflation's coming
down gradually, the RBA hasn't got a lot of scope
to be able to lower interest rates quickly. Of course,
that's in a very big contrast to what's going on
in New Zealand, where the unemployment rates risen quite a lot,
inflation's come right back to target, and the RB and
(02:30):
Z has already delivered a lot of easing and we
think tomorrow they'll probably deliver another fifty basis points cut
as well.
Speaker 1 (02:38):
Yeah, and the question is what do they do after that.
So just coming back to the Governor Michelle Bollock for
a seconds, she made a new comment on the market
pricing in future rate cuts.
Speaker 3 (02:50):
Well absolutely actually today it was very explicit. Not only
did she say it, but if you look at the
RBA's own forecasts, they are only forecasting that their main
the one they focus on, it gets back to two
point seven percent and then track cybway, so it doesn't
actually get to two and a half percent in their
own footcasts. And the reason why it doesn't get all
the way back down is because they're working assumption is
(03:13):
market pricing, and so market pricing is assuming another eighty
four or assuming eighty five basis points worth of cuts altogether.
And the governor explicitly said, we think at this point
in time that if we were to deliver that many cuts,
inflation won't actually get back to two and a half.
So they were very explicit about saying the market is
pricing in too much easing at the moment.
Speaker 1 (03:34):
Interesting, what do you reckon about where we end up
by years in here in New Zealand pool Because initially
the Reserve Bank here was talking about, you know, three
and a half odd percent, but we know that neutral
is closer to three percent, and they were talking about
three and a half by the end of the year.
Do you think they're going to have to revise that?
Speaker 3 (03:52):
So we think you're going to get a fifty basis
point cuts tomorrow from the rbn Z, and then we
think that we're going to get three more RBNZ basis
point moves over the subsequent meetings, and that would get
you down to three percent on the cash rate. That's
our central case, our working assumption for what is going
to be delivered in New Zealand. So this is the
last big cut and then the ones that follow will
(04:13):
be smaller. And of course the question is going to
be do they actually get to deliver all of those cuts?
Because the other thing is, although New Zealand has had
a big downturn last year, starting to these signs that
things are picking up. The PMI is improving, dairy prices
are high, there's been a turnaround in some of the
sentiment indicators as well, and so you know, how much
more does the RBNZ need to deliver. Well, we think
(04:35):
fifty tomorrow and then three more twenty fives. But the
question is going to be do they need to deliver
all of that to get the economy to turn around,
given it's already starting to turn around.
Speaker 1 (04:45):
For more from Hither Duplessy Allen Drive, listen live to
news talks. It'd be from four pm weekdays, or follow
the podcast on iHeartRadio,
Some interest rate relief for Ossie's. Finally, the RBA today
cutting the official cash rate for the first time since
twenty twenty. Governor Michelle Bullock, explaining the quarter percent cut
to four point one percent.
Speaker 2 (00:10):
It's clear that higher interest rates have been working as anticipated,
restricting economic activity and putting downward pressure on inflation. The
Board judges it's time to reduce a little bit of
that restrictiveness. But we cannot declare victory on inflation just yet.
It is not good enough for inflation to be back
in the target range temporarily. The Board needs to be
(00:31):
confident that is returning to the target range sustainably.
Speaker 1 (00:34):
Paul Blocks from HSBC good evening, Hey, good to have
you back. Congratulations you picked that.
Speaker 3 (00:40):
Right, we did, We got that one right, So I'm
definitely happy about that. You know, the cut was part
of it, but the real interesting part was just how
cautious they were, how much they're really giving guidance that
this is one move. But actually they're going to need
more evidence of inflation continuing to fall before they we'd
consider cutting again. So we don't think that we're thinking
(01:03):
that they're going to cut anytime soon again, that it's
going to be quite a few months before we get
another cut from the.
Speaker 1 (01:07):
RBA too, really to celebrate. I mean, if you look
at we were speaking to Mariol's there Ossie correspondent earlier.
He said, it's about one hundred dollars is it? One
hundred dollars a fortnight, if you know, on your average mortgage.
And when the rates went up it was, you know,
fifteen hundred dollars whak to your wallet. So it's come
back a little bit, but it's not you know, it's
not game changing.
Speaker 3 (01:25):
Well that's right. So the RBA lifted its cash right
by four hundred and twenty five basis points. They stopped
doing that in November of twenty twenty three. That was
the last hike that was that arrived, and today they
took back twenty five basis points at that four hundred
and twenty five. So, you know, it's as the governor
said in the recording you just played, you know, monetary
policy is still restrictive. It's just a little bit less restrictive.
(01:47):
And they feel they can make this move because inflation
is coming down. But then it's still not back where
they need to be in terms of inflation. It's still
not quite at the target. And the other thing, of
course for Australia is not only is the you know,
the inflation coming down, but we're doing this within a
labor market that's still very strong. The unemployment rate is
still very low. It's coming down a little bit in
(02:09):
the last couple of months and the last few months
as well, and so we're sort of close to full employment.
If you've got a fully employed economy and inflation's coming
down gradually, the RBA hasn't got a lot of scope
to be able to lower interest rates quickly. Of course,
that's in a very big contrast to what's going on
in New Zealand, where the unemployment rates risen quite a lot,
inflation's come right back to target, and the RB and
(02:30):
Z has already delivered a lot of easing and we
think tomorrow they'll probably deliver another fifty basis points cut
as well.
Speaker 1 (02:38):
Yeah, and the question is what do they do after that.
So just coming back to the Governor Michelle Bollock for
a seconds, she made a new comment on the market
pricing in future rate cuts.
Speaker 3 (02:50):
Well absolutely actually today it was very explicit. Not only
did she say it, but if you look at the
RBA's own forecasts, they are only forecasting that their main
the one they focus on, it gets back to two
point seven percent and then track cybway, so it doesn't
actually get to two and a half percent in their
own footcasts. And the reason why it doesn't get all
the way back down is because they're working assumption is
(03:13):
market pricing, and so market pricing is assuming another eighty
four or assuming eighty five basis points worth of cuts altogether.
And the governor explicitly said, we think at this point
in time that if we were to deliver that many cuts,
inflation won't actually get back to two and a half.
So they were very explicit about saying the market is
pricing in too much easing at the moment.
Speaker 1 (03:34):
Interesting, what do you reckon about where we end up
by years in here in New Zealand pool Because initially
the Reserve Bank here was talking about, you know, three
and a half odd percent, but we know that neutral
is closer to three percent, and they were talking about
three and a half by the end of the year.
Do you think they're going to have to revise that?
Speaker 3 (03:52):
So we think you're going to get a fifty basis
point cuts tomorrow from the rbn Z, and then we
think that we're going to get three more RBNZ basis
point moves over the subsequent meetings, and that would get
you down to three percent on the cash rate. That's
our central case, our working assumption for what is going
to be delivered in New Zealand. So this is the
last big cut and then the ones that follow will
(04:13):
be smaller. And of course the question is going to
be do they actually get to deliver all of those cuts?
Because the other thing is, although New Zealand has had
a big downturn last year, starting to these signs that
things are picking up. The PMI is improving, dairy prices
are high, there's been a turnaround in some of the
sentiment indicators as well, and so you know, how much
more does the RBNZ need to deliver. Well, we think
(04:35):
fifty tomorrow and then three more twenty fives. But the
question is going to be do they need to deliver
all of that to get the economy to turn around,
given it's already starting to turn around.
Speaker 1 (04:45):
For more from Hither Duplessy Allen Drive, listen live to
news talks. It'd be from four pm weekdays, or follow
the podcast on iHeartRadio,
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