Paul Bloxham: HSBC chief economist ahead of latest Reserve Bank OCR decision

All eyes will be on the Reserve Bank tomorrow afternoon, when stand-in Reserve Bank Governor Christian Hawkesby delivers the bank's latest monetary policy statement.

A 25 basis point cut to the OCR to 3.25 percent is taken as a given - but experts are wondering what the future path of interest rates will look like.

HSBC chief economist Paul Bloxham explained further.

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Episode Transcript

Speaker 1 (00:00):
Now, all eyes are on the Reserve Bank tomorrow afternoon,
when the Acting Reserve Bank Governor, Christian Hawksby will announce
any changes to the OCR and inn talk to media
for the first time as the governor. Paul Bloxham is
hspci's chief economist. Hey Paul Good aim twenty five basis
point cut.

Speaker 2 (00:16):
I think that's likely. That's certainly what we think's going
to arrive, and that's the consensus obviously in the market
as well. I mean, there's always a possibility it doesn't,
but I think that the way the economy is still
quite sluggish and growth is still weak enough that the
ARBENZ is likely to be focused on that weaker growth story,
and inflation is low enough at least on the last

(00:37):
print to allow them to be able to ease a
bit further. But the key question is going to be
what they have to say about what's coming after that.
I think that's where you can have a much sort
of more vivid debate about what's next.

Speaker 1 (00:49):
Why not cut fifty basis points.

Speaker 2 (00:52):
Well? I think the RBNZ has done a lot of
easy already, is the answer. They've already cut their cash
right by two hundred basis points over a pretty small
amount of time, if you think about it. I mean,
the first cut came in August of last year. We're
sitting here in May of this year. I mean, I
think so that's one reason there's a lot of easing
that's already been put in place. I think the second
one is that you are seeing some signs that it's

(01:14):
starting to get a bit of traction. You know, the
retail numbers last week, we're a bit on the stronger
side for the first quarter. You're seeing some signs of
stability in the housing market, a turnaround in some of
the sentiment indicators in the business sector. And we know
monetary policy operates with lags. You cut interest rates, it
takes time for it to feed through. So you've put

(01:34):
a lot of stimulus into the economy. You're seeing some
signs it's getting some traction. I think there's probably enough
evidence that you might want to ease just a bit further.
But that's where it's going to start to become a
question as to how much more beyond that needs to
be done to get the economy to turn around and
to still keep inflation consistent with target.

Speaker 1 (01:53):
So the thing is, Paul, I mean everybody agrees that
we're sitting above neutral at the moment, right that is,
still that OCR at that level is still strangling to
some extent. Given how bad the economy is, surely you
should actually be at neutral, if not below, and providing
some stimulus.

Speaker 2 (02:07):
So why not, Well, I think two things. One, neutral
is an estimate. We don't actually know where neutral lives.
We don't know, you know, it's always an estimated concept.
And there are large ara bands around where that neutral
estimate lies as well. And you know, so I think
for the moment, it pays the Arbenz that to be
a little bit more cautious in terms of the pace

(02:29):
at which they deliver rate cuts. We've already seen them
pivot out of the fifty basis point moves they were
doing to the last time, they moved to a twenty
five basis point move, and I think you're seeing signs
that the domestic economy stabilizing. One other remark would be
you have seen in their most recent reading of inflation expectations.
So they do their own They've got a survey that
looks at what consumers think inflation will do going forward,

(02:52):
a bit of a lift. It's picked up a little bit,
so that might be something that the arbens that will
just want to keep a bit of an eye on
that inflation does remain on target and well embedded and
anchored at the middle point of their target band.

Speaker 1 (03:04):
Paul, it's good to talk to you. I appreciate your
time and enjoy it. Tomorrow it's Paul Bloxhom, Hspecies Chief
Economists for more from Hither Duplessy Allen Drive.

Speaker 2 (03:12):
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