Paul Bloxham: HSBC chief economist on the Australian Reserve Bank keeping the OCR in place

Australia's Reserve Bank has taken on a grim tone with today's OCR update - and warned rate cuts aren't on the horizon.

The Bank considered hiking rates today, but moved to keep them in place at 4.35 percent.

HSBC chief economist Paul Bloxham says inflation is still running too far above expectations.

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Episode Transcript

Speaker 1 (00:00):
Now the RBA Board said inflation in underlying terms remains
too high. The latest projection show that it will be
sometime yet before inflation is sustainably in the target range.
And Paul Bloxham's HSBC's chief economist with us to talk
us through it. Hey, Paul good A, Now they thought
about hiking today. Why didn't they hike?

Speaker 2 (00:17):
Well, this is it. They did think about it, which
is quite something when you think about it, because across
the rest of the world, of course we're watching central
banks cutting interest rates at the moment. But yes, as
you say, they left their policy right on hold today
and the governor noted that they did consider lifting them,
but they decided to leave them on hold. Why did
they leave them on hole? Because well, they got an
inflation number last week that was just weak enough, just

(00:40):
weak enough to keep them from lifting interest rates. It
shows that underlying inflation the thing they focus on the most.
The trim mean did edge slightly lower in the second
quarter relative to the first quarter, but it's still running
at three point nine percent and the RBA targets two
and a half, so there's still a long way above
where they need to be. So it was just enough
to get them to remain on hold and not lift

(01:01):
interest rates, but certainly not enough for them to consider
cutting interest rates yet. And that was the big thing
that the governor went through at the press conference. She
noted that, you know, a near term interest rate cut
is just not on the cards at the moment.

Speaker 1 (01:15):
Yeah, I mean increasingly. I remember it was like February
March this year, so five or six months ago, and
you were saying absolutely no cuts this year, and increasingly
you'll been proven rights.

Speaker 2 (01:23):
Right, Ah, I think that sounds about right, That sounds good. Yes. No,
we've had a view since the big tail end of
last year, since the end of twenty twenty three, that
the RBA wasn't going to be cutting interest rates in
twenty twenty four, that the pathway that they'd chosen, and
this is really it quite explicitly chosen. They had lifted
interest rates by less than everyone else. And we know

(01:45):
that they lifted interest rates by four hundred and twenty
five basis points, whereas, for example, the RB and Z
went five twenty five and so did the US Federal Reserve.
So they lifted interest rates by less. They started a
bit later than everyone else. They didn't start till May
of twenty twenty two and so, and they did this
on purpose, did this to try to keep the economy
as close to full employment as possible. They wanted to

(02:05):
keep supporting it, didn't want growth to slow too much.
They wanted to slow, but they didn't want to tip
into a recession, accepting that in doing that it would
take longer for inflation to come down. And so the
explicit pathway they've chosen is one where they thought that
inflation would take longer to come down, and they traded
it off against staying close to full employment. So with
all of that in mind, inflation has come down more slowly,

(02:27):
it turns out, And so the RBA isn't able to
cut yet, and so rate cuts we don't think are
going to happen until next year. That's that's our that's
been our central case.

Speaker 1 (02:35):
So over in New Zealand, there is increasing pressure from
a couple of banks on our Reserve Bank to actually
cut next week because what their argument is is that
it takes about eighteen months for it to flow through
to the economy, may as well get started. Now, what
do you think, I.

Speaker 2 (02:49):
Think it's very very much a live decision. What happens
with the rbn Z. I think the RBNZ took a
very different approach to what I've just described that the
RBA did. The rbns that lifted into rights earlier, they
lifted them by more. New Zealand economy has tipped into
a downturn. You've had two in the past six quarters.
You've had four quarters where GDP was actually falling. The

(03:11):
labor markets starting to loosen up as well. I think
the case is getting stronger for the rbn Z to
be able to cut interest rates fairly soon. Actually, the
critical thing that's really going to be important here, I
think is tomorrow morning we get some employment numbers, and
those employment numbers will be one of the key factors.
I think that goes into working out whether actually the
RBNZ is cutting rights a little later this year or

(03:32):
maybe even ass tomorrow. That will be critical for the story.
So I think we're getting very close to an rb
and Z cut coming through fairly soon. Yay.

Speaker 1 (03:42):
How good is that? Paul, Thank you very much, really
appreciate it. Talks to you in a couple of weeks.
It's Paul Bloxham, HSBC's chief economist. For more from hither,
Duplessy Allen Drive. Listen live to News Talk zi'd Be
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