Bonus: The RBA's July surprise

The RBA handed down a surprise cash rate decision on Tuesday, so why were rates held and what could be in store next month?

On this bonus episode of the Friends With Money podcast, Money’s Tom Watson is joined by Paul Bloxham, HSBC’s chief economist for Australia and New Zealand, to discuss the fallout from the RBA Monetary Policy Board’s July meeting. 

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Episode Transcript

Speaker 1 (00:01):
Welcome to the Friends with Money podcast, brought to you
by Money Magazine, creating financial freedom for Australians since nineteen
ninety nine.

Speaker 2 (00:12):
Hello and thanks for joining us for a bonus episode
of Friends with Money, money Magazine's podcast to help you earn, save,
and achieve your financial goals. My name is Tom Watson,
a senior journalist here at Money Magazine, and as always
it is a pleasure to be with you. Last Yuesday,
the RBA's Monetary Policy Board held the official cash rate
and three point eight five percent, which came as a

(00:33):
bit of surprise for a few people, to say the least.
So on the pod today, we're going to take a
quick dive into the reasoning behind that decision, the implications
and just what might influence the board's thinking when it
meets again in August. So I'm very please say the
joining stage dig into all of that and more is
Paul Bloxham, HSBC's chief economists for Australia and New Zealand. Paul,

(00:54):
pleasure to have you back on the show.

Speaker 3 (00:56):
Great to be here, Thanks Tom.

Speaker 2 (00:58):
Ah so good to have you back on. To start with,
we surprised by the IBA's decision on Tuesday.

Speaker 3 (01:05):
We did expect on the day that they would cut,
but we had flagged in our preview material that there
was some risk that they might delay until August, and
we certainly hadn't jumped into the camp of suggesting that
there were going to be a whole sequence of cuts
delivered from the RBA. So yes, I think the answer
is we were surprised on the day, but we think
the RBA was likely to take a cautious approach, and

(01:27):
this is, I guess, a manifestation of that they. You know,
as the Governor said on the day at the press conference,
it's not so much that they are about the direction
of interest rates. They still think that it's likely that
they'll be delivering interest rate cuts. It was just about
timing and the fact that they weren't quite convinced that
inflation was coming down quite quickly enough, and they feel
like they need a little bit more evidence before they

(01:49):
were prepared to deliver the next cut. And we think
that's they are likely to cut in August, because we
do think there's enough downward pressure on inflation to get
them there.

Speaker 2 (01:59):
And so was there anything else from the governor or
from the post meeting statement that the board put out
that I guess surprised you at all or was it
quite logical in terms of your expectations.

Speaker 3 (02:10):
Well, I think that the you know, the fact that
they interpreted the information they got from the monthly CPI indicator.
So keep in mind Australia has got a quarterly CPI
which is the main thing the RBA focuses on. But
in recent times the ABS has also published this new
monthly CPI indicator and we've all been watching it and
trying to work out what it can tell us. And

(02:32):
they interpreted that monthly CPI indicator a little bit different
to the way the market did and the way we
did as well. They don't think it was quite as
weak as the rest of us have all been interpreting.
And so that was the fundamental area where I think
there's a bit of disagreement about what information you're getting
out out of that indicator. I think the other thing
from the meeting that was really I mean, this is

(02:53):
the new way we're operating now, was that the RBA
obviously published a vote, so the board voted for the
first time and then published or they published a vote
for the first time, and that vote was six' three
in favor of. Holding so there were some dissenters on the.
Board there were some board members who actually thought they
should deliver a cut on that, day and they were

(03:14):
just turned out that the majority of the board members
thought that they should, wait and they should and they should.
Pause so so that's that's a really new feature for THE,
rba where in the past it's been a, meeting a
decision made largely by, consensus and certainly the public was
not made aware about specifically whether board members disagreed or
or did not to the actual. Decision so we're really

(03:37):
moving into quite a new. World and that makes sense
because the RBA's had a big, review they've got a
new monetary policy, board and they're operating in the ways
that were set out to them by that.

Speaker 2 (03:47):
REVIEW i also found out really interesting digging to the
to the release after the meeting and seeing that vote
splitt AND i was, like, oh this is this is,
good too good to. See. Paul you you've mentioned, already
but going forward For august and agus the months, beyond
what are your expectations in terms of what the what
the board might.

Speaker 3 (04:06):
Do, well we still think that there's a you know
that inflation is still coming down that there's what we
call a disinflationary impulse in the, economy and we think
that's going to allow THE rba a bit of room
to be able to lower interest rates a bit. Further
so we're expecting a cut In, august and we expect
another one In, november and then another one in the
early part of twenty twenty. Six but that would be three,
cuts and we think that would be the whole extent

(04:28):
of the easing. Phase so we've had two already so
and we expect three more so one hundred and twenty
five basis points of easing for the entire easing. Phase
so that would still be quite a modest easing, phase
like it Wouldn't it wouldn't be that they had delivered
a lot of cuts, necessarily and that's what we've been.
Expecting and the reason the way we get there, is you,
know the economy is still is still. Growing growth is

(04:49):
actually picking up pace a little bit at the, moment just,
modestly very. Modestly the labor market is still very. Tight
the unemployment rate has broadly tracked sideways now for fifteen,
months and it's still quite low point one. Percent and
although inflation is coming. Down it's coming down quite, slowly
and so because it's only coming down very slowly and
still a little bit above the midpoint of the RBA's target,

(05:10):
band we don't think they're going to be able to
deliver a lot of monetary policy easing in this easing.
Phase that we're going to get a sort of a
very sort of slow moving gradual easing phase from THE
rba this time.

Speaker 2 (05:21):
Around, WELL i imagine there's a fair few homeowners and
other people out there In isralia who are looking forward
to perhaps a different result In. August, paul it's been
brilliant to have you on the. Show it's all we've
got time for, today so thank you so much for
coming on and look forward to chatting with you next.
Time no, Worse thanks a. Lot that's it for this
episode of The friends Of money. Podcast but as, always

(05:42):
A friends Of money will be right back in your
podcast feed before you know, It so until next, Time
I'm Tom. Watson goodbye for.

Speaker 1 (05:48):
Now thanks for listening to The friends With money. Podcast for,
credible independent and easy to understand financial, commentary visit moneymag
dot com dot. Au please remember that the views and
opinions expressed in this podcast are general in nature and,
further independent advice and research based on your personal circumstances

(06:10):
should be sought before making an investment. Decision