Paul Bloxham: HSBC Chief Economist on the Australian Reserve Bank leaving rates on hold for 2024

Australia's central bank has opted to keep rates on hold in its final meeting of 2024 - the same position it's held all year.

The RBA did soften its language a bit, and revealed the board had 'some confidence' that inflation was heading back to target.

HSBC Chief Economist Paul Bloxham predicted rates would come down by 2025.

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Episode Transcript

Speaker 1 (00:00):
Brian Bridge.

Speaker 2 (00:01):
The Australian Reserve Bank has ended the year where it began,
with a cash rate of four point three five percent,
disappointing many, no more so than Albanzi, who wants to
get re elected. The bank softened its language a little bit,
saying the board had gained some confidence that inflation was
heading back to target. Paul Bloxham is the HSBC Chief
executive in Sydney. Paul, good evening, Thanks for being with me.

(00:23):
Good a great to have you on the show. Let's
start with what the bank was saying. What was the message, Well, the.

Speaker 1 (00:30):
Message was that where they're making progress, inflation is heading
towards their target, albeit very slowly. It's a very slow
grind for getting core inflation, the underlying measures that the
RBA focuses on back to the RBA's target. And so
because it's a slow grind, they didn't cut interest rates today.
They didn't feel that they could do that. But they

(00:50):
are starting to hint that they're getting closer and closer
and just a bit more confident that inflation will get
back to where they need it to be, and so
the next move is more likely to be down and up. Now,
keep in mind, not long ago the RBA was still
talking about having options in both directions. They were talking
about not ruling in anything or ruling out anything, and
they've dropped that line line of phrasing and they're starting

(01:13):
to talk more about the idea that rates are likely
to come down but not quite yet. And then in
terms of when, well it's likely to be in twenty
twenty five. Obviously that haven't got another meeting this year.
But the question then is sort of what is the
timing in twenty twenty five And that bit is a
bit harder because there's so much yet to happen, and
there's so much data flow to happen even before the
next RBA meeting which is now still ten ten weeks

(01:36):
away in late February.

Speaker 2 (01:37):
To be fair to the RBA, from our perspective, I mean,
we went much higher and earlier than they did, right, Yes.

Speaker 1 (01:45):
So the approach that was taken to dealing with the
high inflation challenge that both New Zealand and Australia face,
both countries faced the same challenge, the approach was very
different across both sides of the Tasman So, as you say,
the RBNZ had lifted interest rates early, they lifted them
a lot more five hundred and twenty five basis points,
went hard, pushed the economy into a downturn. You've been

(02:06):
in a downturn for two years, and that got inflation
down quite quickly, or quicker at least. And so because
inflation came down enough after being in a downturn for
two years, the RBNZ has been able to start cutting rates.
And they've done it, you know, quite a substantial amount
of it's cut one hundred and twenty five basis points already.
The RBA took the slow road. They lifted rates by less.

(02:27):
They intentionally prioritized trying to stay close to full employment
and to deliver a soft economic landing and not have
a recession. And in doing that, of course, the trade
off was always going to be that inflation would fall
more slowly, and so it has. Inflation hasn't yet gotten
down to where the RBA is comfortable, and we're sitting
here and the RBA still hasn't cut interest rates, and so, yeah,

(02:48):
very different pathways to sort of achieving their mandates from
both the RBNZ and the RBA.

Speaker 2 (02:56):
Whose was the better approach or is it too early?
Is it too early to tell, because I mean you
look over here, and yes, we are dropping our rates,
and we're dropping them quicker than you can you know,
your neckers after a night out going home side. But
you know, but over here it's like trying to revive
a corpse. I mean, the economy feels so beaten and

(03:17):
downtrodden that no matter how low they dropped the rates
at the moment, we're going to take a while to
dig our way out of this.

Speaker 1 (03:25):
So two things. I think it's hard to like determining
which one's a better approach is really it really depends
on how much weight you put on how much preference
you've got to keeping full employment everyone in a job,
versus keeping getting inflation down. So you know, the RBNZ
decided the priority was getting to get inflation down and
to get it down quickly, and that was the way

(03:45):
they approached it. But the cost has been that the
unemployment rate has gone up a lot more. It's gone
from three point two to four point six percent. The
RBA their choice was, well, actually, you know, we want
to keep the unemployment fairly low, and so it's gone
from three and a half to four point one, has
meant that inflation has come down more slowly, so we've
had more inflation for more persistent inflation for longer. In

(04:05):
New Zealand you've gone the other direction. So it really
depends on where which you prioritize. I'm a bit more
confident about in New Zealand than you're describing. I think the
primary thing that's been constraining the economy really getting the
slow down has been the high interest rates, and now
that they're going quickly in that down in that direction,
I think it's going to turn around quite quickly. I

(04:26):
think twenty twenty five you're going to get quite a
recovery in growth in New Zealand. Are's interest rates come
down and households respond and the housing market responds and
so on. So we'll see. But that's my forecast in
New Zealand, all.

Speaker 2 (04:37):
Right, Paul Brilliant. And for Australia, the swaps are saying
it's a split chance of a drop in February.

Speaker 1 (04:43):
Well, that's right about that for February. Our central cases
they won't cut till the second quarter of next year,
so April or May. But well there's a lot of
data yet to come between now and then and so
we'll move towards it and see what happens. But rate
cuts in twenty twenty five seem likely.

Speaker 2 (05:00):
Brilliant Paul, great, have you on the show as always,
Paul Block, some hspecies, chief economist out of Sydney. For
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