August 19, 2025 • 5 mins
The Reserve Bank is widely expected to cut the OCR tomorrow, according to new reports.
The OCR is currently sitting at 3.25 percent and the major banks have already been dropping their mortgage interest rates in anticipation.
HSBC chief economist Paul Bloxham outlined his predictions.
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Speaker 1 (00:00):
Togever Do for c l Let's talk about the OCA.
The Reserve Bank is widely expected to cut it tomorrow.
It sits at three point twenty five percent. Major banks
have already been dropping their mortgage interest rates in anticipation.
HSBC's chief economist Paul Bloxham is with us from Sydney. Hay, Paul,
so what do you reckon? Do you reckon? They'll have
consensus around the table on this.
Speaker 2 (00:20):
I think that it's fairly clear that the case should
be made that, you know, cutting by twenty five basis
points makes sense. I think, you know, the economy is
still quite sluggish, and the data that the labor markets
particularly soggy at the moment, and so the case for
supporting growth is probably stronger than the case for being
worried that inflation has picked up a bit. And it
(00:41):
has picked up a bit, So I think I think
they should get over the line fairly comfortably for delivering
a cup tomorrow.
Speaker 1 (00:47):
And what do you reckon that the do the cut
and then do they indicate more easing after that?
Speaker 2 (00:52):
I think that they're likely to be a bit circumspected
about what's coming next. Actually, I mean, I think although
as I say they is still looking a bit sluggish,
and still the labor market SOGI inflation having picked up
a bit is something that will be I think in
their focus they'll know about that. And then I think
the other thing to watch out for is we've had
some wobbles in the data over the past couple of months,
(01:15):
obviously the PMIS and arrange of the sort of timely indicators,
but they have come back a bit in the last print,
and I do think that these wobbles are going to
prove to be just temporary. I think the two big
forces at work that are going to lift growth in
New Zealand are going to be interest rates have come
down a long way already and I think they'll go
down another twenty five basis points. And dairy prices are
at high levels and that's boosting the agricultural sector. So
(01:37):
I think they should be quite circumspect about what they
do next, even though I'm fairly confident they're going to
deliver a cut tomorrow.
Speaker 1 (01:43):
Do you think that given that, I mean, you're a
bit more glass half full than glass half MD, right,
and you think we're probably actually already on our way up.
Do we need to change our attitude in this country
and stop being so moody about it.
Speaker 2 (01:55):
Oh look, I think that when you look at the
economy from a distance, I do. I watch New Zealand
very carefully, but I watch it from Australia. I think
I can see the big picture forces at work that
are supporting the economy, and I think it does feel
on the ground. I was in New Zealand a few
weeks back. It does feel still a bit a bit sluggish.
But the thing is we're not We're not trying to
(02:17):
work out where the economy is right now. We're trying
to work out whether the economy is going to be
in six or twelve months time. We're trying to forecast,
and so I think, don't get too caught up in
the things that are the fact that things are a
bit sluggish at the moment. The forces at work are
in play for getting growth to lift over the next
six to twelve months, and that's how we've framed our view.
Speaker 1 (02:37):
Am I right in thinking that Michelle Bullock was being
a little bit cagy about where she thinks neutral is.
Speaker 2 (02:43):
I don't think the RBA wants to be very specific
about where they think neutral is. In fact, They've been
quite clear in their published work in their statement that
there are lots of models, and those models all show
quite you know, are varied estimates as to where neutral is,
and so you know, they look at them all and
they take some information from them. But I don't think
they're being guided in terms of what they do month
(03:05):
to month with their or you know, meeting to meeting
with their policy setting at the RBA, by where they
are relative to neutral. I think it's just one of
the many things that goes into the mix about the discussion,
but it's not actually the thing that's driving the decision.
So I think, you know, they've been fairly clear that
they don't. They think that it's you know, it's there's
a large range of estimates where neutral is.
Speaker 1 (03:26):
So why not actually say where they think neutralism? Is
it not helpful to people to have an idea of
what they think?
Speaker 2 (03:35):
Well, but I think this is the point that they are.
I don't think they set policy in that way. I
think the way they go about setting policy is primarily
by doing it by feel, is the way I describe. Right.
They're data dependent. They're watching the data as it comes out.
If the data are a bit weak or a bit
stronger relative to their forecast than that sort of conditions
how they're going to respond, And it's about doing it
(03:55):
that way rather than having a really strong view about
where they think neutral is and then setting it based
on a model framework, because the risk of doing that,
of course, is you could be wrong. You might not
get your neutral estimate particularly right. And I guess the
RBA is being quite clear about the fact that actually
there's a lot of variability, and the models all come
up with sort of you know, model estimates that can
(04:16):
be quite variable. So better to do it by feel
better to go about setting monetary policy based on the
data as we see it, rather than putting a lot
of weight on a very uncertain forecast.
Speaker 1 (04:27):
What do you think, now that we've had the tariff
stuff largely sorted out and it's settled down a wee bit,
where do you see the international economic situation sitting.
Speaker 2 (04:35):
I think we still yet to see the full effect
of the tariff uncertainty that came through. I think a
lot of what's actually held up the economic indicators over
the past six months or so has been a lot
of front loading, you know, there's been a lot of
pull forward of activity ahead of the arrival of those tariffs,
a lot of imports into the US, a lot of
exports out of other economies into the US, and I
(04:57):
think we're yet to see that front loading roll off,
and I think as it does roll off, it's actually
going to weaken the global economic cycle, both the US
and the one in Asia. So I think I think
we still haven't seen the full effect of that, the
uncertainty that was created by all of those trade developments,
and also the impact it's had in terms of driving
front loading. So we've still got in mind that global
(05:19):
growth slows in the coming months and into the early
part of next year.
Speaker 1 (05:23):
Good stuff. Hey, it's always good to talk to you, Paul.
Thanks so much. Paul Bloxham, HSPECIES Chief Economists.
Speaker 2 (05:28):
For more from Hither Duplessy Alan Drive, listen live to
news talks. It'd be from four pm weekdays, or follow
the podcast on iHeartRadio.
Togever Do for c l Let's talk about the OCA.
The Reserve Bank is widely expected to cut it tomorrow.
It sits at three point twenty five percent. Major banks
have already been dropping their mortgage interest rates in anticipation.
HSBC's chief economist Paul Bloxham is with us from Sydney. Hay, Paul,
so what do you reckon? Do you reckon? They'll have
consensus around the table on this.
Speaker 2 (00:20):
I think that it's fairly clear that the case should
be made that, you know, cutting by twenty five basis
points makes sense. I think, you know, the economy is
still quite sluggish, and the data that the labor markets
particularly soggy at the moment, and so the case for
supporting growth is probably stronger than the case for being
worried that inflation has picked up a bit. And it
(00:41):
has picked up a bit, So I think I think
they should get over the line fairly comfortably for delivering
a cup tomorrow.
Speaker 1 (00:47):
And what do you reckon that the do the cut
and then do they indicate more easing after that?
Speaker 2 (00:52):
I think that they're likely to be a bit circumspected
about what's coming next. Actually, I mean, I think although
as I say they is still looking a bit sluggish,
and still the labor market SOGI inflation having picked up
a bit is something that will be I think in
their focus they'll know about that. And then I think
the other thing to watch out for is we've had
some wobbles in the data over the past couple of months,
(01:15):
obviously the PMIS and arrange of the sort of timely indicators,
but they have come back a bit in the last print,
and I do think that these wobbles are going to
prove to be just temporary. I think the two big
forces at work that are going to lift growth in
New Zealand are going to be interest rates have come
down a long way already and I think they'll go
down another twenty five basis points. And dairy prices are
at high levels and that's boosting the agricultural sector. So
(01:37):
I think they should be quite circumspect about what they
do next, even though I'm fairly confident they're going to
deliver a cut tomorrow.
Speaker 1 (01:43):
Do you think that given that, I mean, you're a
bit more glass half full than glass half MD, right,
and you think we're probably actually already on our way up.
Do we need to change our attitude in this country
and stop being so moody about it.
Speaker 2 (01:55):
Oh look, I think that when you look at the
economy from a distance, I do. I watch New Zealand
very carefully, but I watch it from Australia. I think
I can see the big picture forces at work that
are supporting the economy, and I think it does feel
on the ground. I was in New Zealand a few
weeks back. It does feel still a bit a bit sluggish.
But the thing is we're not We're not trying to
(02:17):
work out where the economy is right now. We're trying
to work out whether the economy is going to be
in six or twelve months time. We're trying to forecast,
and so I think, don't get too caught up in
the things that are the fact that things are a
bit sluggish at the moment. The forces at work are
in play for getting growth to lift over the next
six to twelve months, and that's how we've framed our view.
Speaker 1 (02:37):
Am I right in thinking that Michelle Bullock was being
a little bit cagy about where she thinks neutral is.
Speaker 2 (02:43):
I don't think the RBA wants to be very specific
about where they think neutral is. In fact, They've been
quite clear in their published work in their statement that
there are lots of models, and those models all show
quite you know, are varied estimates as to where neutral is,
and so you know, they look at them all and
they take some information from them. But I don't think
they're being guided in terms of what they do month
(03:05):
to month with their or you know, meeting to meeting
with their policy setting at the RBA, by where they
are relative to neutral. I think it's just one of
the many things that goes into the mix about the discussion,
but it's not actually the thing that's driving the decision.
So I think, you know, they've been fairly clear that
they don't. They think that it's you know, it's there's
a large range of estimates where neutral is.
Speaker 1 (03:26):
So why not actually say where they think neutralism? Is
it not helpful to people to have an idea of
what they think?
Speaker 2 (03:35):
Well, but I think this is the point that they are.
I don't think they set policy in that way. I
think the way they go about setting policy is primarily
by doing it by feel, is the way I describe. Right.
They're data dependent. They're watching the data as it comes out.
If the data are a bit weak or a bit
stronger relative to their forecast than that sort of conditions
how they're going to respond, And it's about doing it
(03:55):
that way rather than having a really strong view about
where they think neutral is and then setting it based
on a model framework, because the risk of doing that,
of course, is you could be wrong. You might not
get your neutral estimate particularly right. And I guess the
RBA is being quite clear about the fact that actually
there's a lot of variability, and the models all come
up with sort of you know, model estimates that can
(04:16):
be quite variable. So better to do it by feel
better to go about setting monetary policy based on the
data as we see it, rather than putting a lot
of weight on a very uncertain forecast.
Speaker 1 (04:27):
What do you think, now that we've had the tariff
stuff largely sorted out and it's settled down a wee bit,
where do you see the international economic situation sitting.
Speaker 2 (04:35):
I think we still yet to see the full effect
of the tariff uncertainty that came through. I think a
lot of what's actually held up the economic indicators over
the past six months or so has been a lot
of front loading, you know, there's been a lot of
pull forward of activity ahead of the arrival of those tariffs,
a lot of imports into the US, a lot of
exports out of other economies into the US, and I
(04:57):
think we're yet to see that front loading roll off,
and I think as it does roll off, it's actually
going to weaken the global economic cycle, both the US
and the one in Asia. So I think I think
we still haven't seen the full effect of that, the
uncertainty that was created by all of those trade developments,
and also the impact it's had in terms of driving
front loading. So we've still got in mind that global
(05:19):
growth slows in the coming months and into the early
part of next year.
Speaker 1 (05:23):
Good stuff. Hey, it's always good to talk to you, Paul.
Thanks so much. Paul Bloxham, HSPECIES Chief Economists.
Speaker 2 (05:28):
For more from Hither Duplessy Alan Drive, listen live to
news talks. It'd be from four pm weekdays, or follow
the podcast on iHeartRadio.
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