1 00:00:05,640 --> 00:00:08,360 Speaker 1: Welcome to the Fear and Greed business Interview. I'm suan Aylmer. 2 00:00:08,520 --> 00:00:11,159 Speaker 1: The Reserve Bank Board has cut interest rates by a 3 00:00:11,240 --> 00:00:14,320 Speaker 1: quarter of one percent, the first reduction since twenty twenty. 4 00:00:14,640 --> 00:00:18,560 Speaker 1: With inflation on its way down. The move was widely expected, 5 00:00:18,880 --> 00:00:21,360 Speaker 1: but in the words of Reserve Bank Governor Michelle Bullock, 6 00:00:21,480 --> 00:00:24,440 Speaker 1: the Board of the Bank remains alert to the surprising 7 00:00:24,480 --> 00:00:27,400 Speaker 1: strength of the labor market. She warned, there's nothing to 8 00:00:27,520 --> 00:00:30,520 Speaker 1: suggest that the Reserve Bank Board will keep cutting rates 9 00:00:30,520 --> 00:00:34,640 Speaker 1: while inflation isn't quite under control. Gareth ed is common 10 00:00:34,640 --> 00:00:37,680 Speaker 1: Off Bank's head of Australian Economics. Gareth, welcome back to 11 00:00:37,720 --> 00:00:38,320 Speaker 1: Fear and Greed. 12 00:00:38,680 --> 00:00:39,800 Speaker 2: That's nice to be Buckshawn. 13 00:00:40,479 --> 00:00:43,159 Speaker 1: What was a tipping point for this rate cut? What 14 00:00:43,200 --> 00:00:45,919 Speaker 1: was the deciding factor for the board? Oh? 15 00:00:46,000 --> 00:00:48,160 Speaker 2: Look, I think if you had to point to one 16 00:00:48,520 --> 00:00:51,240 Speaker 2: piece of data, it was the Q four CPI, which 17 00:00:51,280 --> 00:00:53,640 Speaker 2: we got out a few weeks ago. Now, in fact, 18 00:00:53,680 --> 00:00:55,760 Speaker 2: there was several weeks ago and we've had this kind 19 00:00:55,800 --> 00:00:58,920 Speaker 2: of vacuum where a lot of people between that CPI 20 00:00:59,040 --> 00:01:02,280 Speaker 2: coming out in late Jim and the rate decision yesterday 21 00:01:02,360 --> 00:01:05,080 Speaker 2: have been speculating as to will they won't they cut 22 00:01:05,600 --> 00:01:08,200 Speaker 2: but we were pretty confident at comald Bank when we 23 00:01:08,240 --> 00:01:11,399 Speaker 2: saw that Q four inflation data, which for the trim 24 00:01:11,440 --> 00:01:14,160 Speaker 2: means showed an increase of point five percent on the quarter, 25 00:01:14,600 --> 00:01:16,520 Speaker 2: and the RBA had thought it would come in ato 26 00:01:16,560 --> 00:01:20,080 Speaker 2: point seven percent, and we thought that downside miss would 27 00:01:20,120 --> 00:01:23,560 Speaker 2: see them cut the cash rate yesterday. And then if 28 00:01:23,600 --> 00:01:25,160 Speaker 2: you had to point to a few other bits and 29 00:01:25,200 --> 00:01:28,600 Speaker 2: bobs that would have given them confidence to cut rates yesterday, 30 00:01:29,080 --> 00:01:31,640 Speaker 2: it was that wages data in the third quarter of 31 00:01:31,720 --> 00:01:33,520 Speaker 2: last year came in a little bit softer than they 32 00:01:33,560 --> 00:01:37,360 Speaker 2: had thought, and then also the national accounts which came 33 00:01:37,400 --> 00:01:40,280 Speaker 2: out back in December of last year were also a 34 00:01:40,280 --> 00:01:43,840 Speaker 2: little bit weaker. So that body of evidence, particularly on 35 00:01:43,880 --> 00:01:48,320 Speaker 2: the inflation side, was behind the decision yesterday to, as 36 00:01:48,320 --> 00:01:52,400 Speaker 2: the Governor said, take rates a little bit away from 37 00:01:52,440 --> 00:01:57,160 Speaker 2: their current level of restrictiveness, albeit they are still currently restrictive. 38 00:01:58,120 --> 00:02:01,400 Speaker 1: Do you think that the trajectory of the economy has 39 00:02:01,520 --> 00:02:04,520 Speaker 1: surprised the Reserve Bank a little bit? Michelle? But did 40 00:02:04,520 --> 00:02:07,840 Speaker 1: talk about inflation easying perhaps faster than they had thought. 41 00:02:08,480 --> 00:02:10,760 Speaker 2: Yeah, look, it has. In fact, two things have been 42 00:02:10,800 --> 00:02:13,440 Speaker 2: a surprise to them, and one of them is that 43 00:02:13,480 --> 00:02:17,320 Speaker 2: inflation has moderated more quickly than they thought. And the 44 00:02:17,360 --> 00:02:20,000 Speaker 2: other thing that surprised them is that the unemployment rate 45 00:02:20,240 --> 00:02:24,480 Speaker 2: has basically held steady through last year at four percent. Now, 46 00:02:24,520 --> 00:02:29,120 Speaker 2: that's an unusual kind of configuration, because normally, if inflation's 47 00:02:29,160 --> 00:02:32,520 Speaker 2: coming down more quickly than you thought, unemployment would be 48 00:02:32,680 --> 00:02:35,760 Speaker 2: rising more than you thought. But as it's turned out, 49 00:02:35,960 --> 00:02:39,240 Speaker 2: the RBA's effectively and Australians more generally have had the 50 00:02:39,240 --> 00:02:43,080 Speaker 2: best of both, where we've had more disinflation than was 51 00:02:43,120 --> 00:02:46,480 Speaker 2: previously thought, but also a labor market that's held up better. 52 00:02:46,600 --> 00:02:49,359 Speaker 2: So I think the Governor yesterday referred to that as 53 00:02:50,320 --> 00:02:54,079 Speaker 2: good outcomes, outcomes that should be welcomed. And ultimately we 54 00:02:54,200 --> 00:02:58,040 Speaker 2: got two favorable surprises in terms of both inflation and 55 00:02:58,520 --> 00:02:59,760 Speaker 2: the health of the labor market. 56 00:03:00,840 --> 00:03:03,960 Speaker 1: Okay, what about the next move? Then? It seemed to 57 00:03:04,000 --> 00:03:07,400 Speaker 1: me that Michelle Bullock was quite strided in the view. 58 00:03:07,480 --> 00:03:09,280 Speaker 1: She said, it wasn't a late awmasire, it was a 59 00:03:09,320 --> 00:03:13,560 Speaker 1: consensus decision. She's the cautious about the outloog. She wasn't 60 00:03:13,560 --> 00:03:15,480 Speaker 1: exactly saying there's another rate cut on the way. 61 00:03:16,560 --> 00:03:18,960 Speaker 2: No. I mean, I think at the end of the day, 62 00:03:19,000 --> 00:03:22,720 Speaker 2: the board itself had to debate whether or not it 63 00:03:22,760 --> 00:03:25,760 Speaker 2: was right to move the cash rate down or to 64 00:03:25,840 --> 00:03:28,079 Speaker 2: leave it on hold. And I think if the governor 65 00:03:28,120 --> 00:03:31,200 Speaker 2: basically said all along, we knew we'd be cutting cutting rates, 66 00:03:31,880 --> 00:03:34,480 Speaker 2: then it would sort of imply, well, what exactly were 67 00:03:34,480 --> 00:03:37,080 Speaker 2: you talking about for so long over your day and 68 00:03:37,120 --> 00:03:39,320 Speaker 2: a half. So I think it just shows that they 69 00:03:39,360 --> 00:03:45,040 Speaker 2: had a healthy discussion around both options, but ultimately they 70 00:03:45,080 --> 00:03:48,360 Speaker 2: concluded that the right thing to do was to take 71 00:03:48,360 --> 00:03:52,400 Speaker 2: the cash rate down a little bit. And she still 72 00:03:52,440 --> 00:03:55,840 Speaker 2: wanted to point out that policy is at a restrictive setting. 73 00:03:56,000 --> 00:03:58,760 Speaker 2: So the way to think about that through the lens 74 00:03:58,800 --> 00:04:01,960 Speaker 2: of them cutting rates is they're not putting their foot 75 00:04:02,080 --> 00:04:05,240 Speaker 2: on the accelerator of the economy. They're just edging it 76 00:04:05,280 --> 00:04:08,480 Speaker 2: off the economic break for one of a better phrase, 77 00:04:09,040 --> 00:04:12,160 Speaker 2: And that's what you really should be doing if the 78 00:04:12,200 --> 00:04:14,680 Speaker 2: inflation data is giving you the green light to do that, 79 00:04:14,800 --> 00:04:17,320 Speaker 2: because all along they've wanted to preserve as many games 80 00:04:17,360 --> 00:04:20,159 Speaker 2: as possibly in the labor market, and all along they've 81 00:04:20,200 --> 00:04:22,800 Speaker 2: wanted to get inflation down. And if we're getting to 82 00:04:22,880 --> 00:04:26,200 Speaker 2: the point where the data is basically showing that's occurring, 83 00:04:26,720 --> 00:04:30,159 Speaker 2: and you think the policy is restrictive, which they do, 84 00:04:30,640 --> 00:04:33,200 Speaker 2: then it makes a lot of sense to cut rates. 85 00:04:33,480 --> 00:04:35,840 Speaker 2: And I think the reason why she didn't want to 86 00:04:35,880 --> 00:04:39,760 Speaker 2: commit to the future path of rates is that they've 87 00:04:39,800 --> 00:04:42,800 Speaker 2: been surprised by the strength in the labor market and 88 00:04:43,600 --> 00:04:47,680 Speaker 2: I think if that were to hold, they will still 89 00:04:47,760 --> 00:04:51,920 Speaker 2: harbor some doubts is to what the pace or what 90 00:04:51,960 --> 00:04:55,080 Speaker 2: the trajectory for inflation looks like over the course of 91 00:04:55,160 --> 00:04:57,880 Speaker 2: this year. I think if the unemployment rate had been 92 00:04:57,920 --> 00:05:01,680 Speaker 2: going up, they would be more confident that inflation will 93 00:05:01,760 --> 00:05:05,120 Speaker 2: keep coming down. Because the labor markets stayed more healthy 94 00:05:05,120 --> 00:05:07,920 Speaker 2: than they thought. They just a little bit cautious on 95 00:05:08,080 --> 00:05:11,320 Speaker 2: what inflation might look like over the coming three to 96 00:05:11,400 --> 00:05:13,919 Speaker 2: six months, and therefore they don't want to get anyone's 97 00:05:13,960 --> 00:05:15,560 Speaker 2: hopes up and say, look, we think we might be 98 00:05:15,600 --> 00:05:18,520 Speaker 2: going back to back, because ultimately they don't know, and 99 00:05:18,520 --> 00:05:21,159 Speaker 2: they're just going to be guided by the data as 100 00:05:21,240 --> 00:05:24,000 Speaker 2: it comes in, not just between now and the April 101 00:05:24,000 --> 00:05:26,919 Speaker 2: Ward meeting, but over the first six months of this 102 00:05:27,040 --> 00:05:29,960 Speaker 2: year as to what future moves in the cash road 103 00:05:30,000 --> 00:05:30,720 Speaker 2: actually look like. 104 00:05:31,680 --> 00:05:34,159 Speaker 1: The difference between the Reserve Bank economists and people like 105 00:05:34,200 --> 00:05:37,279 Speaker 1: you Gareth, who runs Australian Economics at the Commalth bank 106 00:05:37,360 --> 00:05:38,880 Speaker 1: is that you have to have a call on that 107 00:05:39,400 --> 00:05:41,359 Speaker 1: they're allowed to say, well, we don't know. Do you 108 00:05:41,400 --> 00:05:44,359 Speaker 1: think there will be more rate cuts in coming months? 109 00:05:44,720 --> 00:05:49,120 Speaker 2: Yeah, we do. Well, when we say coming months, we've 110 00:05:49,120 --> 00:05:52,440 Speaker 2: got the next one penciled in there for May. So 111 00:05:52,520 --> 00:05:54,919 Speaker 2: if they were to move the cash rate lower in 112 00:05:55,000 --> 00:05:57,880 Speaker 2: May as being the next move, that would indicate that 113 00:05:57,880 --> 00:06:02,000 Speaker 2: they're on hold in April. I think provided the labor 114 00:06:02,040 --> 00:06:06,960 Speaker 2: market data looks pretty good over that period, they're more 115 00:06:07,120 --> 00:06:09,800 Speaker 2: likely to wait until May to get another update on 116 00:06:09,880 --> 00:06:13,800 Speaker 2: inflation just to confirm that that disinflation track that they've 117 00:06:14,040 --> 00:06:17,440 Speaker 2: laid out in their forecasts is still happening, and therefore 118 00:06:17,480 --> 00:06:20,360 Speaker 2: they would remove some more restrictiveness because they still think 119 00:06:20,400 --> 00:06:23,440 Speaker 2: policy is restrictive. I think the only way they would 120 00:06:23,480 --> 00:06:26,719 Speaker 2: be going back to back and cutting the April board 121 00:06:26,760 --> 00:06:30,040 Speaker 2: meeting based on what they said today, as if the 122 00:06:30,160 --> 00:06:33,760 Speaker 2: labor market data was to show that there's more of 123 00:06:33,800 --> 00:06:37,160 Speaker 2: a loosening taking place over the next couple of months. 124 00:06:37,240 --> 00:06:39,760 Speaker 2: And so on Thursday we get an update on the 125 00:06:39,839 --> 00:06:43,760 Speaker 2: Genuary labor force in the form of the Genuary Labor 126 00:06:43,760 --> 00:06:46,159 Speaker 2: Force Survey, and then we get the February lay before 127 00:06:46,240 --> 00:06:49,480 Speaker 2: Survey before the April Board meeting, so I'd be looking 128 00:06:49,560 --> 00:06:53,320 Speaker 2: at those two pieces of data as to whether or 129 00:06:53,360 --> 00:06:55,839 Speaker 2: not they might cut in April. The other thing, too, 130 00:06:55,920 --> 00:06:59,880 Speaker 2: is we're still getting monthly inflation data now that is 131 00:07:00,000 --> 00:07:03,480 Speaker 2: a little bit more choppy, and also it's always a 132 00:07:03,480 --> 00:07:06,640 Speaker 2: partial read on the CPI basket. But having said that, 133 00:07:06,680 --> 00:07:09,680 Speaker 2: once you get two months of the quarter, you get 134 00:07:09,680 --> 00:07:12,120 Speaker 2: a pretty good idea as to where that quarterly number 135 00:07:12,160 --> 00:07:14,200 Speaker 2: is going to come in at. And they will have 136 00:07:14,280 --> 00:07:17,960 Speaker 2: two months of the CPI data ahead of the April 137 00:07:17,960 --> 00:07:20,800 Speaker 2: Board meeting. So long and the short of it is, 138 00:07:21,040 --> 00:07:23,360 Speaker 2: we think rates will still go lower through this year. 139 00:07:23,680 --> 00:07:25,920 Speaker 2: I think it's more likely than the next one will 140 00:07:25,960 --> 00:07:30,080 Speaker 2: be made. But they didn't. The Governor didn't categorically rule 141 00:07:30,080 --> 00:07:31,880 Speaker 2: out April because they know there's still a fair bit 142 00:07:31,920 --> 00:07:33,720 Speaker 2: of data to come out between now and then. 143 00:07:34,360 --> 00:07:39,520 Speaker 1: Stay with me, Gareth, we'll be back in a minute. 144 00:07:42,640 --> 00:07:45,240 Speaker 1: I'm talking to Gareth Aired from the Commonwealth Bank. What 145 00:07:45,360 --> 00:07:49,040 Speaker 1: does all this mean the rate cut for homeowners, for consumers, 146 00:07:49,320 --> 00:07:53,280 Speaker 1: business confidence. I mean, Michelle Bullock yesterday talked about every 147 00:07:53,320 --> 00:07:56,120 Speaker 1: little bit helps and I'm sure it does. What's it 148 00:07:56,320 --> 00:07:59,160 Speaker 1: mean for the economy? Does it make much of a difference. 149 00:08:00,160 --> 00:08:02,880 Speaker 2: I think that's right. I mean, every little bit does help. 150 00:08:03,160 --> 00:08:06,000 Speaker 2: Now in terms of the pure mechanics of a twenty 151 00:08:06,080 --> 00:08:09,440 Speaker 2: five basis point rate cut on home borrow a cash flow, 152 00:08:10,520 --> 00:08:14,720 Speaker 2: it's not a huge amount. However, if you think about 153 00:08:14,720 --> 00:08:17,040 Speaker 2: what happened last year, for a lot of last year, 154 00:08:17,080 --> 00:08:21,440 Speaker 2: the RBA was talking about potentially raising rates further rather 155 00:08:21,480 --> 00:08:25,560 Speaker 2: than cutting them, and that really weighed on consumer confidence 156 00:08:25,760 --> 00:08:28,720 Speaker 2: and business competence to a lesser extent as well. So 157 00:08:28,800 --> 00:08:32,120 Speaker 2: I think that the fact that the RBA has started 158 00:08:32,520 --> 00:08:36,839 Speaker 2: to cut raids yesterday that will see a pickup in confidence. 159 00:08:37,280 --> 00:08:39,520 Speaker 2: It's not a huge change for the average home borrow 160 00:08:39,559 --> 00:08:42,360 Speaker 2: from a cash flow perspective, I think, how soholds are 161 00:08:42,360 --> 00:08:44,800 Speaker 2: going to be feeling better about the outlook from here, 162 00:08:45,320 --> 00:08:49,240 Speaker 2: knowing where past the peak in rates, knowing that a 163 00:08:49,320 --> 00:08:52,760 Speaker 2: further reduction in rates is more likely than not, and 164 00:08:52,800 --> 00:08:57,160 Speaker 2: that should help degenerate a modest pickup in spending and 165 00:08:57,240 --> 00:09:00,280 Speaker 2: ultimately for the spending side of the economy has actually 166 00:09:00,320 --> 00:09:02,560 Speaker 2: been pretty soft over the past twelve months or so, 167 00:09:02,720 --> 00:09:05,080 Speaker 2: and if we can get the economy growing to something 168 00:09:05,160 --> 00:09:07,520 Speaker 2: more like two to two and a half percent, which 169 00:09:07,559 --> 00:09:10,320 Speaker 2: is more like a trend pace, then we'll be seeing 170 00:09:10,520 --> 00:09:13,960 Speaker 2: outcomes that have been historically sort of consistent with unemployment 171 00:09:14,000 --> 00:09:16,319 Speaker 2: not moving up too much. So I think in a 172 00:09:16,400 --> 00:09:18,840 Speaker 2: very near term we'll look to just measures of consumer 173 00:09:18,920 --> 00:09:22,360 Speaker 2: confidence and our internal spending data at the Commonald Bank 174 00:09:22,880 --> 00:09:24,960 Speaker 2: for any kind of response. But I think from a 175 00:09:24,960 --> 00:09:29,800 Speaker 2: psychological perspective for many households and businesses out there, that 176 00:09:29,920 --> 00:09:32,319 Speaker 2: rate reduction yesterday would have been very much welcome. 177 00:09:33,240 --> 00:09:35,480 Speaker 1: We're a had almost out of time, but we should 178 00:09:35,480 --> 00:09:37,840 Speaker 1: at least mention the statement on montre policy, which also 179 00:09:37,920 --> 00:09:41,280 Speaker 1: came out yesterday. The Reserve Bank did say that there's 180 00:09:41,360 --> 00:09:44,280 Speaker 1: are signs of recovery in the household sector, which is 181 00:09:44,320 --> 00:09:46,880 Speaker 1: good news. Now people like the Commwealth Bank probably know 182 00:09:46,880 --> 00:09:48,800 Speaker 1: more about that than almost anyone else because you have 183 00:09:48,880 --> 00:09:50,800 Speaker 1: real time data. Are you seeing that? 184 00:09:51,440 --> 00:09:54,080 Speaker 2: Yeah, Look, we have seen that in the back end 185 00:09:54,080 --> 00:09:57,880 Speaker 2: of last year, where our spending data actually picked up 186 00:09:57,880 --> 00:10:01,720 Speaker 2: a bit relative to the September quarter. Our data for January, 187 00:10:01,720 --> 00:10:04,360 Speaker 2: though it looks a little bit softer, and the spending 188 00:10:04,440 --> 00:10:07,440 Speaker 2: data is pretty choppy month a month. I think it'd 189 00:10:07,440 --> 00:10:09,880 Speaker 2: be a surprise if we didn't see some pickup in spending, 190 00:10:10,040 --> 00:10:14,240 Speaker 2: just given how weak spending growth was in Australia for 191 00:10:14,280 --> 00:10:16,280 Speaker 2: about eighty months or so. We're actually on a per 192 00:10:16,360 --> 00:10:19,400 Speaker 2: capita basis, it was going backwards, so that story couldn't 193 00:10:19,440 --> 00:10:22,800 Speaker 2: go on indefinitely. And there were the tax cuts that 194 00:10:22,840 --> 00:10:25,160 Speaker 2: came through that saw households start to see a pickup 195 00:10:25,160 --> 00:10:28,560 Speaker 2: in income. Coupled with the full inflation has actually helped 196 00:10:28,679 --> 00:10:32,080 Speaker 2: household purchasing power. So there's definitely some signs there that 197 00:10:32,480 --> 00:10:35,560 Speaker 2: activity has picked up a little bit, but not to 198 00:10:35,640 --> 00:10:37,440 Speaker 2: the kind of levels where we should be I think 199 00:10:37,520 --> 00:10:40,160 Speaker 2: worried about the outlook for inflation. It's more that the 200 00:10:40,280 --> 00:10:44,120 Speaker 2: RBA wants to just keep a cautious message going at 201 00:10:44,160 --> 00:10:46,720 Speaker 2: the moment, knowing that there's plenty of economic data to 202 00:10:46,760 --> 00:10:49,079 Speaker 2: trickle in between their board meetings. 203 00:10:49,480 --> 00:10:51,160 Speaker 1: Gareth, thank you for talking to Fear and Greed. 204 00:10:51,320 --> 00:10:52,520 Speaker 2: Thanks having me Sean. 205 00:10:52,600 --> 00:10:55,800 Speaker 1: As Gareth ed come off Banks, Head of Australian Economics. 206 00:10:55,840 --> 00:10:58,400 Speaker 1: This is the Fear and Greed Business Interview. Join us 207 00:10:58,400 --> 00:11:00,720 Speaker 1: every morning for the full episode of Fear and Greed. 208 00:11:00,800 --> 00:11:03,120 Speaker 1: Daily business news for people who make their own decisions. 209 00:11:03,280 --> 00:11:06,480 Speaker 1: I'm Chanelle Monk. Enjoy your day.