Paul Bloxham: HSBC chief economist speculates about the future of interest rates

Acting Reserve Bank Governor Christian Hawkesby left experts speculating about the future of interest rates following the recent OCR cut.

More banks have slashed their rates after the recent announcement, but questions have been raised over future cuts.

HSBC chief economist Paul Bloxham speculates further.

LISTEN ABOVE

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
Blocks of agspec's chief economist is with us.

Speaker 2 (00:02):
Hey, Paul good A, are you even.

Speaker 1 (00:05):
More confused this week than last about where the rates
are going in New Zealand?

Speaker 3 (00:11):
No, I don't think so.

Speaker 2 (00:12):
I mean, I think I thought you were going to
ask me about am I confused about the global picture?
There's so much going on every day, it's shifting and
changing and so on. But no, I think. I mean,
I think the RBNZ is getting near the end of
the using phase, and that's the view we've had for
a while. I mean, we've got one more cut penciled
into our central case. But I think that now the

(00:34):
question is do we get that or not? Because no,
the New Zealand economy is in an upswing. The partial
indicators are showing an up swing. I would point out
that we HSBC have been the top of consensus in
terms of the forecast. We've had the strongest forecasts of
all of the economists for New Zealand for this year,
and we've had that all year long so far. And
I think I'm sticking by that story that I think

(00:56):
New Zealand's going to be in a good, strong upswing.
And I think there are two big things going on.
And we've said this again all year long. One, interest
rates have come down a long way and they are
going to start to get some grip and lift the economy.

Speaker 3 (01:09):
And I think you've seen some signs of that.

Speaker 2 (01:11):
And two, you've seen this very strong rise in dairy
prices that is boosting incomes in the agricultural sector, and
we know that can be a pretty big force for
New Zealand. Once that gets going, it can really start
to see more capex and more spending and more money
coming into the cities as well. And so we think
those two forces are turning the New Zealand economy around.
We've got growth of two percent this year and as

(01:32):
I say, the highest growth forecasts of any of the
sort of forecasters that.

Speaker 1 (01:39):
People will be so thrilled to hear that because it's
been such a tough grind, as you know, for the
last few years in New Zealand. Tell me, then, what
do you think is going on globally? I mean, where
are we at now?

Speaker 2 (01:48):
Well, I think we're still yet to see there's still
some bad news yet to come. I think that's the
way I would see it. I sort of think about
it as a three stage process. We've had a huge
rise in uncertainty. All of this stuff going on with
trade policy has increased uncertainty to higher levels. And uncertainty
is not good for growth. It makes businesses, you know, cautious,
and it means they don't know where where to invest.

Speaker 3 (02:09):
And so on.

Speaker 2 (02:09):
We haven't seen the full effect of that yet in
the economic indicators, and that's partly because.

Speaker 3 (02:14):
We've had massive front loading.

Speaker 2 (02:15):
You know, there's been a whole bunch of pull forward
of activity to try and get ahead of the arrival
of the tariffs that are going to arrive, and so
that's increased imports and increased exports and increased consumer spending.
It's boosted the activity indicators. But it's going to roll over.
And when when that rollo, when that front loading is finished,
it's going to weaken growth. And I think we're still
going to be in quite an uncertain global environment.

Speaker 1 (02:37):
You know.

Speaker 2 (02:38):
My sense is policy is shifting and changing so quickly
that uncertainty will still be there. So I still think
that's quite a bit of bad news for the global
macroeconomy yet to feed through to the actual numbers.

Speaker 1 (02:49):
Now, Paul, the thing is, we've had some bad news
in Auckland today. Obviously everybody's houses has gone backwards, and
you know, the wealth effect would suggest that as a result,
the old wallets are going to snapshot. How long does
it take for us to get over a disappointment like
that before we start spending again.

Speaker 3 (03:03):
Well, my understanding is this is a reflection of house
price declines that have already happened. Yes, and actually the
housing market is already starting to stabilize because interest rates
are coming down. And actually we should think about this
as a reassessment of the value of houses that then
affects the rates that people pay. Actually, in principle that
should mean household's got a bit more income to spend

(03:23):
because they haven't to spend as much on rates. I
mean I So it's not clear to me that the
sort of perceptions effect of oh my house price is
lower is going to be larger than the actual effect
of incomes they're going to have. Households are going to
get a bit of a boost to their incomes, because
this is how the rates are calculated for housing.

Speaker 1 (03:41):
Even nobody gets a boost to the income, They just
get a smaller rate increase. Potentially, that's right.

Speaker 2 (03:47):
Well, so relative to the expectation that they were going
to get a larger one. They're not going to get
a they're going to get a smaller one. So in principle,
in principle, you've got you've got a little bit more
spending power than you thought you'd have.

Speaker 1 (03:59):
Well, so here's hoping Paul listen, appreciate it as always,
Paul Bloxhom Agspecies, chief economist.

Speaker 2 (04:05):
For more from Hither Duplessy Allen Drive, listen live to
news talks.

Speaker 3 (04:09):
It'd be from four pm weekdays, or follow the podcast
on iHeartRadio.