Paul Bloxham: HSBC CEO on Australia's Reserve Bank keeping the OCR on hold at 4.35 percent

Australia's Reserve Bank has left the OCR unchanged at 4.35 percent after a lengthy deliberation process.

The Bank has been waging a long-term battle against inflation, as residents grapple with the ongoing cost of living crisis.

HSBC CEO Paul Bloxham warns the RBA could resort to another rate hike in the coming months - depending on how things shake out.

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Episode Transcript

Speaker 1 (00:00):
Ever, Duprez the Aussie Reserve Bank has kept the official
cash right over there on hold four point three percent.
The banks is inflation in Australia is easy, but it
is more slow than expected and on the path of
interest rates. It's not ruling anything in or out. Paul
Bloxham is HSPECIES Chief Economists at Paul. Does that sound
to you like they're even considering a hike or is

(00:21):
that just jaw boning.

Speaker 2 (00:23):
Look, I think they're really quite solidly on hold at
the moment, but I do think that there's a chance
that in the coming months we could see the RBA
decide to lift interest rates again. I certainly have been
saying that. I think there's a higher chance that the
RBA is going to lift its policy rate in the
second half of this year than them cutting it. I think,

(00:44):
you know, they're highly unlikely to cut it. Their primary
concern at the moment is still that inflation is too high,
and as they said today, it's falling even more slowly,
and so I still think there's a chance. I mean,
my central case is they're going to be on hold,
and there's a long hold to come from THEBA. But
I think we can't rule out the possibility that they
might hike sometime in the coming meetings.

Speaker 3 (01:05):
What do you think would tip them into a hike.

Speaker 2 (01:08):
It's primarily about inflation. It really is going to be
about the inflation numbers. And I think the main thing
to look out for will be that second quarter inflation
print that we get in late July ahead of their
August meeting. That's going to be the main thing to
be watching out for, because if they were to get
another upside surprise, keeping in mind they had an upside
surprise at the last for the last inflation print and

(01:29):
they didn't respond because it was only a small upside surprise.
But if you start accumulating them getting multiple ones, it
might very well convince them that they just have a
little bit more they have to do. The thing that
might lean against that. Of course, you might not get
the upside surprise. That's one possibility. And then the other
possibility is that you start to see a bit more
weakening in the jobs market and that weak growth persists

(01:52):
because we've already got growth that slowed down. The challenge
we've got in Australia is growth has slowed, but inflation
hasn't come down very fast. Very similar to New Zealand
in some ways. It's just that growth hasn't slowed as
much here as it had in New Zealand.

Speaker 3 (02:04):
What is it that's causing your inflation to be so sticky.

Speaker 2 (02:08):
Well, I think it's primarily a similar story to New Zealand. Actually,
it's that the supply side of our economy is still
quite disrupted. And it may sound like a stretch, but
you know, there's still quite a lot of the disruptive
impacts of the pandemic related policies and the pandemic itself
flowing through the economy. And you can see that in
things like, well, the fact that the jobs market is

(02:30):
still not quite matching as well as it should. It's
still difficult to find skills, the fact that we've still
got we've got a decline in housing construction going on
right now, even though we've got very strong demands for housing,
And a lot of that is that the housing market,
the housing construction industry is quite gummed up. And I
think a lot of that is sort of residual effects
of the pandemic. That's sharp rising materials costs. It's forced

(02:52):
a lot of builders to become insolvent and that's gumming
up the system. So I still think that it's a
lot to do with weak productivity and a week apply
side of our economy, and a quite a bit of
that can be attributed to the effects of the pandemic
and the pandemic policy response, and it's still flowing through
and constraining the economy's ability to deliver, which is leaving

(03:12):
you with this higher inflation despite the weakening demand.

Speaker 3 (03:16):
Paul, give me your take on what happens when we
finally get a cut, whether it's a New Zealand or
in Australia, Because there is a school of thought that
what will happen is it will be such a relief
and such a poortend of good things to come that
immediately people will become more liberal with their spending.

Speaker 2 (03:29):
Do you think I think that the cuts, when they
do come, will be delivered at a time when the
economy is quite weak, and so they will have an
effect in terms of lifting things. Yeah. And I think
the key question, I guess is going to be about,
you know, when the cuts we do get cuts, And
our central case for New Zealand is that you are
likely to get cuts by the end of the year.

(03:50):
That's what we're working with and we've got in mind
that come next year you'll get a sequence of cuts
in New Zealand. And so if you get a sequence
of cuts from the RBNZ, I think you will see
some tangible signs that it's going to be supportive of growth.
And that's our central case, and that's primarily because the
economy is so weak in New Zealand at the moment.
In Australia's case, they've kind of chosen a different strategy.

(04:10):
They didn't lift rates as much. We've got a very
slow decline and inflation going on. We've had a slow
down in growth, but we haven't they actually had a contraction.
So when they do start easing, I think that's going
to be a very They're not going to cut over
very much to start with. I think it'll be that
you're likely to see them on hold for an extended
period and then a couple of cuts in the second

(04:31):
half of next year. From the middle of next year
is what we've got in mind. So different effects in
different places.

Speaker 1 (04:36):
Hey, Paul, thank you asways really appreciate your sharing some
of the expertise with us. As Paul Bloxham hsp's chief economist.

Speaker 2 (04:43):
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