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 (00:00):
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
ah SPECIES 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 2 (00:19):
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

(00:39):
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 and they were
perhaps previously so. So that that's the main thing that
I think the market's taken from today, that you know,
they're on hold today and whether there's more cuts to
come is sort of where the eight is or how

(01:02):
many of those rate cuts are get to come? Will
they cut in November? I guess is the big question.

Speaker 1 (01:06):
Okay, what are they seeing in inflation?

Speaker 2 (01:10):
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

(01:31):
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 that 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.

(01:52):
And if it doesn't keep heading towards, then maybe they
won't be able to deliver much more easy And if
it does, you know, head towards it, then then we
might get 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 a in an upswing.
Growth has picked up pace, we're you know, the consumers
starting to spend a bit more. Australia is in a

(02:14):
modest growth up swing.

Speaker 1 (02:15):
Yeah, Paul, what are you expecting from the rbn Z
in next week?

Speaker 2 (02:18):
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
judyp print we got for the the last second quarter
one and do they feel the need to move even more?

(02:39):
And so, you know, we think that that 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 rbens that will probably deliver fifty basis
points next week, that they'll cut more because that that

(02:59):
that that print was very weak. It surprised them to
the downside. They'd already be indicating that they were going
to be cuts coming anyway, so we think that's likely.
Think we're going to get the ABENZ cutting delivering a
bigger cut next week.

Speaker 1 (03:10):
Look, I stand to be corrected, but I think I
saw 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 2 (03:21):
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 rot 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

(03:42):
of that November meeting is 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 and coming through
from the abn Z pretty soon.

Speaker 1 (03:56):
Yeah, listen on that gap. It seems to be a
firming up. Is 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.
What do you think, Oh.

Speaker 2 (04:11):
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 1 (04:31):
Yeah, you like the cut of her jib.

Speaker 2 (04:33):
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 1 (04:41):
Absolutely, yeah, Paul, Thank you very much, as always appreciated.
Paul Bloxham, HSPECIES Chief Economist.

Speaker 2 (04:47):
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