Paul Bloxham: HSBC chief economist on the RBA moving to hold the OCR at 4.1 percent

The Australian Reserve Bank has moved to hold the OCR steady at 4.1 percent following this afternoon's meeting.

Interest rates started to drop in February - but the Central Bank opted to hold off on going further for the time being.

HSBC chief economist Paul Bloxham explains what inspired the market to make this move.

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Episode Transcript

Speaker 1 (00:00):
Brand.

Speaker 2 (00:01):
Let's go to Australia. The Australian Reserve Bank has held
the official cash rate at four point one. This is
this afternoon. Interest rates heads started to come down in February,
but the bank today decided to hold off on going
any further. Paul Blocks from HSBC Tip Economists with me.

Speaker 1 (00:16):
Hi Paul, good evening.

Speaker 2 (00:18):
Good to have you on the show. So why is
the bank paused.

Speaker 1 (00:22):
Well, we kind of thought they would for a start,
we had in mind that the market thought that they
wouldn't be doing anything today. They've given guidance back in
February that you know, although they could get over the
line for delivering that interest rate cup that we saw
back then on the eighteenth of February, they weren't likely
to deliver back to back cut, that the economy wasn't
disinflating quite quickly enough. And since then the domestic data

(00:44):
at least have come in line with what they had
been expecting. Growth is on a modest upswing, the labor
market is still quite tight, with the unemployment rate sideways,
and inflation's gradually easy. So they said today, you know,
inflation's coming down and that's a good that's a good thing,
but they weren't quite convince yes to be able enough
that it was going to get back to target for

(01:04):
them to be able to deliver another cup today.

Speaker 2 (01:06):
Hell of a time to be making a big call
like that, The day before Trump's Liberation Day, we will
find out about the tariffs. Do you think that played
into it at all? I mean, you know, not wanting
to preempt a potential tariff war and what that might
mean for a recession or dare I say inflation.

Speaker 1 (01:22):
So I think today's decision was largely grounded on what
was happening domestically and how the domestic story is traveling.
But I think in this statement that we got from
the RBA today, it's very clear. It's a short statement,
it had a lot of information about the fact that
they were very uncertain about the global picture and what
that might mean. So it certainly was something that the
rbable to would be watching very carefully and they'd be

(01:44):
thinking about or would they relayed that. You know, their
own take is that this was going to be downside
risk to global activity, so downside risk to global growth.
But they were quite clear in their statement as well,
saying that they weren't sure what it might mean for inflation,
whether it was upside or downside for inflation. So they're
watching very carefully like the rest of us, in terms
of these global developments. They're very relevant and they may

(02:06):
drive a Munkey policy in one direction or another. But
they're also pretty clear today that they don't really know
until they've seen more information exactly which way inflation is
likely to drive inflation. That's the view that they portrayed today.

Speaker 2 (02:18):
Yeah, the other problem of courses that could go both ways.
We could have a recission and and we could have stagflation.

Speaker 1 (02:25):
Well, certainly that's a risk and we need to watch
it very carefully. I think it's a risk probably more
for the US economy that we need to there. But
I think you know, if you think about what tends
to happen when there's a global downturn, it tends to
be disinflationary. And I think I think that's the main
way we're thinking about it at least, is that the

(02:46):
direction of risk is more likely that if it goes
poorly and the global economy slows down more, it's more
likely to be downside risk for inflation. In Australia and
New Zealand. Actually that's the way we would think about
it for New Zealand as well, because there'll be a
lot of manufactured goods that might not be going to
the markets that they previously would have out of China

(03:07):
and Asia and so on, and they'll be looking to
put those sell those manufactured goods into another market. And
our countries are large importers of manufactured goods, so we
may very well see, you know, there's a risk, we
think at least of more disinflation rather than the other way.

Speaker 2 (03:21):
Rountd Michelle Bullock, the Governor, indicated last time we spoke
there would be two cuts this year. Did did they
give any ford given all that uncertain did they give
any forward forecast?

Speaker 1 (03:31):
So the RBA doesn't actually articulate a view on what
they are going to do with monetary policy. The last
time around, what they did was they always have a
working assumption in their set of forecast about what the
market is currently pricing at that point in time, and
that's what you're relying that. That's what they did last time.
But this time around they didn't publish any forecasts because
this is a meeting that's sort of in between the

(03:53):
two that there was no explicit guidance. I think actually,
if anything, they were pretty light on in terms of
the guidance, and a part of that reflects, of course,
this global risk that we're talking about that actually it's
difficult to know which way things are going to go
on the inflation outlook, and so they really didn't provide
very much that much a forward guide.

Speaker 2 (04:13):
All right, Paul, interesting stuff. Thanks for you analysis, Paul
Blocks and hsb C chief economist out of Sydney. For
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