July 6, 2025 • 6 mins
This week: All eyes are on the Reserve Bank Board ahead of their decision on monetary policy tomorrow.
Sean Aylmer and Stephen Koukoulas discuss the major events, reports and releases that provide insight into the economy this week.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Welcome to Fear and Greed the week ahead.
Speaker 2 (00:06):
I'm Sean Almer, and as always I'm joined by economist
Stephen Coculis. You'll find him at the cook dot com
and on x using the handle the Kirk Stephen.
Speaker 3 (00:14):
Good morning, very good morning to you, Sean.
Speaker 2 (00:17):
Now it's all about interest rates this week. The Reserve
Bank Board starts. The meeting today finishes tomorrow two thirty pm.
We find out Tomorrow afternoon we find out whether or
not they are going to cut interest rates.
Speaker 1 (00:30):
Drum roll, please over to you, Stephen Coculis.
Speaker 3 (00:33):
It's a done deal. Basically, a twenty five point rate
cut is baked into the cake. It's baked into the
futures market. I think from my reading of Bloomberg and
Ruyter's surveys where they serve they ask economists all but
one or two mavericks. Dare I say as saying that
there's a twenty five point cut coming? And the reasons
are pretty simple when we just look at what's happened
(00:53):
between the last meeting of the RBA Monetary Policy Board
and what we're going to see tomorrow afternoon. We've had,
in no particular order, relatively weak GDP zero point two
percent growth in March, which was really disappointing and lower
than the RBA was thinking. Importantly, even though it's the
monthly inflation indicator, it's still got a lot of information
(01:14):
about price pressures through the quarter. So for the month
of May, so halfway through the grim quarter, we had
headline inflation at two point one percent in annual terms
trimmed mean, the one that everybody loves, including the RBA,
at two point four percent, blow the midpoint of the
target range. And then on a couple of other the indicators,
things like consumer spending, new building, construction, building approvals, these
(01:37):
sorts of things, consumer sentiments, global conditions. You overlay what's
happening in the global economy right now and a twenty
five point YEP let's deliver it from the RBA. Let's
sort of have cautious language after it to say that
we're not not a slam duck, that we're going to
get another one. But you know, we do need to
have monetary policy contributing a bit more to better economic
(01:58):
times rather than putting a squeez on the economy when
growth is weak and inflations at or slightly below the
midpoint of the target ban.
Speaker 1 (02:07):
Now it's easy to be I mean a hind.
Speaker 2 (02:10):
Time's twenty twenty, So when we talk about the Reserve Bank,
it's easy to say they were too slow lifting rates.
Now that we're on the other side of it, have
they been too slow to drop rates?
Speaker 3 (02:22):
Look, I think the argument is that probably, but it's
not a fatal error because they can catch up relatively quickly.
So if it would have been nice to have interestrates
a little bit more accommodated right now, particularly in the
light as I said of those economic growth numbers and
the inflation numbers, that they're the proof of the pudding.
So if you want to work out whether the Reserve
Bank's done too much or too little on interest rates,
(02:43):
look at growth, unemployment, and inflation. And when they were
slow to hike in the prior cycle. Yeah, we saw
inflation hit eight percent. Yeah, we saw unemployment four to
three point four percent. We saw economic growth spike to
five percent. So that tells me that they're too slow.
Now we've got the inverse. But as I said, they
can catch up. So if they cut tomorrow, they cut
(03:05):
again in August, they cut again in October. As the
market is pricing and not just me shouting from the rooftop,
it's the market pricing in these things. We'll have a
cachete of three percent, maybe a little bit less early
in twenty twenty six, and I think that will be
the sort of stuff that will sort of turn the
economy around, give it a bit of a kick start.
See us consumers spending a bit more and vitally important,
(03:27):
seeing the business sector have some confidence to invest in
cap x, artificial intelligence technology and all these things that
are going to make us more productive.
Speaker 2 (03:35):
Sixty four dollars, question Steven, what's the right level of
interest rates? What's the neutral level? The level that you
want in the Goldilocks level.
Speaker 3 (03:43):
Only sixty four dollars? I want sixty four men, if
I get that one, Look, we know that it's in
the low three is. Without pinpointing too many decimal points,
we know that about three maybe three and a quarter percent.
Know it's about the level that's sort of the one
that's sort of good for encouraging a little bit of investment,
(04:03):
a little bit of spending, a little bit of borrowing.
It's also not so low as to see that part
of the economy overheat, and as the RBA even acknowledge.
You know, Michelle Bullockwin her last press conference of that
six or seven weeks ago, said that monetary policy with
a cash rate currently at three point eight five percent
is restrictive, that is, is putting more downside pressure on
(04:24):
the economy than upside pressure on the economy. So that's
why we economists are saying, look, they've got to get
to neutral because the economy is still pretty subdued. So
that says to me that we need fifty points of
cuts roughly to get to neutral. And then if we
want to stimulate the economy, like if we get to
the end of this year in GDP grades still only
you know, one point seventy five percent of inflations at
(04:45):
two point zero percent or thereabouts, and the unemployment rates
creeping up, then we might need to move to a
commodative interest rates, which is a cash rate below three percent.
Speaker 1 (04:55):
How long we been doing this show, Steven, you and
I three years?
Speaker 3 (04:59):
Probably that it's a long time, isn't it.
Speaker 2 (05:01):
I reckon this is the most exciting show we have
ever done, because previously we're talking about raid hikes, maybe
rate cuts. You are saying, rate cut tomorrow, rate cut
the next month, rate cut later in the year, So
that's three in all likelihood.
Speaker 3 (05:16):
On top of the two that we've already seen. Don't forget,
we've already had two rate cuts. They cut in February
and they cut in May. They paused in April for
whatever reason. So by the time that we have our
weak ahead in first week of January, for example, if
we could fast forward to that version, we'll probably have
interstrates down one hundred and twenty five basis points from
where they were. And when people put that into their
(05:39):
either mortgage calculator or their repayment schedule, people with a
chunky devil are under a huge amount of pressure. They're
going to be seeing multiple hundreds of dollars a month
off their repayment schedule, which is multiple hundred dollars per
month which is available for spending. And at a time.
Don't forget this, Sean that while this year's passed and
we're traversing this twelve period, wages have been growing by
(06:02):
three to three and a half percent, So actually we're
getting a little bit of extra incomebany, not a boom
in wages, but there's a little bit more income coming
in for most people with the wage increase their debt
burden's gone down. I won't say happy days a here again,
but that's how that's how you manage an economy, and
the Reserve Bank are doing that. Yees. So this is
a quite exciting time that we should be getting set
(06:23):
for twenty twenty six. Yeah, it's got the preconditions for
a pretty good year.
Speaker 1 (06:30):
Fantastic, Stephen, enjoy your week.
Speaker 3 (06:32):
Thanks, Jean.
Speaker 1 (06:33):
There's economist Stephen Coucola's beener, known as the Kok.
Speaker 2 (06:35):
You can find him at the cook dot com and
follow him on X using the handle the Kirk. I'm
Sean Almer and this is hearing greeed the week Ahead.
Welcome to Fear and Greed the week ahead.
Speaker 2 (00:06):
I'm Sean Almer, and as always I'm joined by economist
Stephen Coculis. You'll find him at the cook dot com
and on x using the handle the Kirk Stephen.
Speaker 3 (00:14):
Good morning, very good morning to you, Sean.
Speaker 2 (00:17):
Now it's all about interest rates this week. The Reserve
Bank Board starts. The meeting today finishes tomorrow two thirty pm.
We find out Tomorrow afternoon we find out whether or
not they are going to cut interest rates.
Speaker 1 (00:30):
Drum roll, please over to you, Stephen Coculis.
Speaker 3 (00:33):
It's a done deal. Basically, a twenty five point rate
cut is baked into the cake. It's baked into the
futures market. I think from my reading of Bloomberg and
Ruyter's surveys where they serve they ask economists all but
one or two mavericks. Dare I say as saying that
there's a twenty five point cut coming? And the reasons
are pretty simple when we just look at what's happened
(00:53):
between the last meeting of the RBA Monetary Policy Board
and what we're going to see tomorrow afternoon. We've had,
in no particular order, relatively weak GDP zero point two
percent growth in March, which was really disappointing and lower
than the RBA was thinking. Importantly, even though it's the
monthly inflation indicator, it's still got a lot of information
(01:14):
about price pressures through the quarter. So for the month
of May, so halfway through the grim quarter, we had
headline inflation at two point one percent in annual terms
trimmed mean, the one that everybody loves, including the RBA,
at two point four percent, blow the midpoint of the
target range. And then on a couple of other the indicators,
things like consumer spending, new building, construction, building approvals, these
(01:37):
sorts of things, consumer sentiments, global conditions. You overlay what's
happening in the global economy right now and a twenty
five point YEP let's deliver it from the RBA. Let's
sort of have cautious language after it to say that
we're not not a slam duck, that we're going to
get another one. But you know, we do need to
have monetary policy contributing a bit more to better economic
(01:58):
times rather than putting a squeez on the economy when
growth is weak and inflations at or slightly below the
midpoint of the target ban.
Speaker 1 (02:07):
Now it's easy to be I mean a hind.
Speaker 2 (02:10):
Time's twenty twenty, So when we talk about the Reserve Bank,
it's easy to say they were too slow lifting rates.
Now that we're on the other side of it, have
they been too slow to drop rates?
Speaker 3 (02:22):
Look, I think the argument is that probably, but it's
not a fatal error because they can catch up relatively quickly.
So if it would have been nice to have interestrates
a little bit more accommodated right now, particularly in the
light as I said of those economic growth numbers and
the inflation numbers, that they're the proof of the pudding.
So if you want to work out whether the Reserve
Bank's done too much or too little on interest rates,
(02:43):
look at growth, unemployment, and inflation. And when they were
slow to hike in the prior cycle. Yeah, we saw
inflation hit eight percent. Yeah, we saw unemployment four to
three point four percent. We saw economic growth spike to
five percent. So that tells me that they're too slow.
Now we've got the inverse. But as I said, they
can catch up. So if they cut tomorrow, they cut
(03:05):
again in August, they cut again in October. As the
market is pricing and not just me shouting from the rooftop,
it's the market pricing in these things. We'll have a
cachete of three percent, maybe a little bit less early
in twenty twenty six, and I think that will be
the sort of stuff that will sort of turn the
economy around, give it a bit of a kick start.
See us consumers spending a bit more and vitally important,
(03:27):
seeing the business sector have some confidence to invest in
cap x, artificial intelligence technology and all these things that
are going to make us more productive.
Speaker 2 (03:35):
Sixty four dollars, question Steven, what's the right level of
interest rates? What's the neutral level? The level that you
want in the Goldilocks level.
Speaker 3 (03:43):
Only sixty four dollars? I want sixty four men, if
I get that one, Look, we know that it's in
the low three is. Without pinpointing too many decimal points,
we know that about three maybe three and a quarter percent.
Know it's about the level that's sort of the one
that's sort of good for encouraging a little bit of investment,
(04:03):
a little bit of spending, a little bit of borrowing.
It's also not so low as to see that part
of the economy overheat, and as the RBA even acknowledge.
You know, Michelle Bullockwin her last press conference of that
six or seven weeks ago, said that monetary policy with
a cash rate currently at three point eight five percent
is restrictive, that is, is putting more downside pressure on
(04:24):
the economy than upside pressure on the economy. So that's
why we economists are saying, look, they've got to get
to neutral because the economy is still pretty subdued. So
that says to me that we need fifty points of
cuts roughly to get to neutral. And then if we
want to stimulate the economy, like if we get to
the end of this year in GDP grades still only
you know, one point seventy five percent of inflations at
(04:45):
two point zero percent or thereabouts, and the unemployment rates
creeping up, then we might need to move to a
commodative interest rates, which is a cash rate below three percent.
Speaker 1 (04:55):
How long we been doing this show, Steven, you and
I three years?
Speaker 3 (04:59):
Probably that it's a long time, isn't it.
Speaker 2 (05:01):
I reckon this is the most exciting show we have
ever done, because previously we're talking about raid hikes, maybe
rate cuts. You are saying, rate cut tomorrow, rate cut
the next month, rate cut later in the year, So
that's three in all likelihood.
Speaker 3 (05:16):
On top of the two that we've already seen. Don't forget,
we've already had two rate cuts. They cut in February
and they cut in May. They paused in April for
whatever reason. So by the time that we have our
weak ahead in first week of January, for example, if
we could fast forward to that version, we'll probably have
interstrates down one hundred and twenty five basis points from
where they were. And when people put that into their
(05:39):
either mortgage calculator or their repayment schedule, people with a
chunky devil are under a huge amount of pressure. They're
going to be seeing multiple hundreds of dollars a month
off their repayment schedule, which is multiple hundred dollars per
month which is available for spending. And at a time.
Don't forget this, Sean that while this year's passed and
we're traversing this twelve period, wages have been growing by
(06:02):
three to three and a half percent, So actually we're
getting a little bit of extra incomebany, not a boom
in wages, but there's a little bit more income coming
in for most people with the wage increase their debt
burden's gone down. I won't say happy days a here again,
but that's how that's how you manage an economy, and
the Reserve Bank are doing that. Yees. So this is
a quite exciting time that we should be getting set
(06:23):
for twenty twenty six. Yeah, it's got the preconditions for
a pretty good year.
Speaker 1 (06:30):
Fantastic, Stephen, enjoy your week.
Speaker 3 (06:32):
Thanks, Jean.
Speaker 1 (06:33):
There's economist Stephen Coucola's beener, known as the Kok.
Speaker 2 (06:35):
You can find him at the cook dot com and
follow him on X using the handle the Kirk. I'm
Sean Almer and this is hearing greeed the week Ahead.
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