1 00:00:03,960 --> 00:00:06,450 Sean Aylmer: Welcome to the Fear and Greed Business interview. I'm Sean 2 00:00:06,450 --> 00:00:09,719 Sean Aylmer: Aylmer. Yesterday the Reserve Bank board kept interest rates on 3 00:00:09,719 --> 00:00:14,549 Sean Aylmer: hold at 4. 35%. It was widely anticipated, but this 4 00:00:14,549 --> 00:00:16,980 Sean Aylmer: meeting still got a lot more attention than usual because 5 00:00:16,980 --> 00:00:19,650 Sean Aylmer: it was the first in the new era of the 6 00:00:19,650 --> 00:00:23,340 Sean Aylmer: central bank. Among the changes are longer meetings, fewer of 7 00:00:23,340 --> 00:00:26,279 Sean Aylmer: them, and a press conference afterwards where we saw Reserve 8 00:00:26,280 --> 00:00:29,490 Sean Aylmer: Bank Governor Michele Bullock front the media and explained the 9 00:00:29,490 --> 00:00:33,598 Sean Aylmer: board's thinking and assumptions about rates, inflation, wages, employment, bunch 10 00:00:33,598 --> 00:00:35,759 Sean Aylmer: of even Taylor Swift. In fact, Taylor Swift got a 11 00:00:35,760 --> 00:00:40,440 Sean Aylmer: mention yesterday. Cherelle Murphy, EC Chief Economist at EY. Cherelle, welcome 12 00:00:40,440 --> 00:00:41,400 Sean Aylmer: back to Fear and Greed. 13 00:00:41,940 --> 00:00:43,589 Cherelle Murphy: Thank you, Sean. Lovely to be here. 14 00:00:44,040 --> 00:00:46,769 Sean Aylmer: Before we get on to Taylor Swift and all things 15 00:00:47,159 --> 00:00:51,299 Sean Aylmer: press conference, no real surprise in terms of the decision 16 00:00:51,299 --> 00:00:54,870 Sean Aylmer: to keep interest rates on hold. What about the commentary 17 00:00:54,870 --> 00:00:55,650 Sean Aylmer: that went with it? 18 00:00:56,820 --> 00:01:00,000 Cherelle Murphy: You're right, no surprise in terms of the decision. Would've 19 00:01:00,000 --> 00:01:02,309 Cherelle Murphy: been a real shock if they'd done something yesterday, I 20 00:01:02,309 --> 00:01:05,610 Cherelle Murphy: think given what the inflation data have been doing. The 21 00:01:05,610 --> 00:01:09,630 Cherelle Murphy: commentary itself probably a little bit on the hawkish side. 22 00:01:09,630 --> 00:01:13,740 Cherelle Murphy: So the Reserve Bank's still clearly very worried about the 23 00:01:13,740 --> 00:01:16,980 Cherelle Murphy: risks from inflation, and they are very keen to make 24 00:01:16,980 --> 00:01:20,789 Cherelle Murphy: sure the market knows that there is not necessarily an, 25 00:01:20,789 --> 00:01:24,750 Cherelle Murphy: I guess, alleviation of some of those pressures. Plus, in 26 00:01:24,750 --> 00:01:27,150 Cherelle Murphy: fact, there may even be new pressures coming into the 27 00:01:27,150 --> 00:01:30,479 Cherelle Murphy: equation as the year rolls on. So I think the RBA 28 00:01:30,510 --> 00:01:33,360 Cherelle Murphy: wanted to make it very clear that it has not 29 00:01:33,360 --> 00:01:36,120 Cherelle Murphy: taken its eye off the ball in terms of inflation. 30 00:01:36,720 --> 00:01:40,740 Sean Aylmer: How important is it just to get that message across? 31 00:01:40,860 --> 00:01:44,549 Sean Aylmer: We have a new governor, obviously under pressure. I presume 32 00:01:44,549 --> 00:01:46,680 Sean Aylmer: she doesn't want to look as if she doesn't put 33 00:01:46,680 --> 00:01:50,309 Sean Aylmer: inflation front and centre of what's going on here. So 34 00:01:50,310 --> 00:01:53,490 Sean Aylmer: how much of this is kind of jawboning almost just 35 00:01:53,490 --> 00:01:56,010 Sean Aylmer: to make sure that markets just don't get ahead of 36 00:01:56,010 --> 00:01:57,060 Sean Aylmer: themselves on this stuff? 37 00:01:57,929 --> 00:02:02,790 Cherelle Murphy: Absolutely. The credibility is absolutely crucial as you know, Sean, 38 00:02:02,790 --> 00:02:06,750 Cherelle Murphy: to a central bank because if the punters out there 39 00:02:06,750 --> 00:02:10,740 Cherelle Murphy: don't think that the central bank can keep inflation under 40 00:02:10,740 --> 00:02:14,820 Cherelle Murphy: control, then they won't believe that inflation target or that 41 00:02:15,809 --> 00:02:19,979 Cherelle Murphy: magic 2. 5% per year rise in prices will be 42 00:02:19,980 --> 00:02:22,919 Cherelle Murphy: ongoing. And if they don't believe it, then it won't 43 00:02:22,919 --> 00:02:28,620 Cherelle Murphy: happen. So the credibility part of central banking is crucial 44 00:02:28,620 --> 00:02:32,160 Cherelle Murphy: and therefore, particularly when you have changes like this and 45 00:02:32,160 --> 00:02:34,620 Cherelle Murphy: a new governor, that new governor of course has to 46 00:02:34,620 --> 00:02:39,389 Cherelle Murphy: establish their credibility particularly quickly. Now, it's obviously easier when 47 00:02:39,389 --> 00:02:41,669 Cherelle Murphy: that person is already well known to the market as 48 00:02:41,669 --> 00:02:45,510 Cherelle Murphy: Michele Bullock is, but she's not so well known to 49 00:02:45,600 --> 00:02:48,450 Cherelle Murphy: mums and dads out there. So she was definitely working 50 00:02:48,450 --> 00:02:52,800 Cherelle Murphy: really hard on that today using lots of plain language, 51 00:02:53,190 --> 00:02:57,809 Cherelle Murphy: notably, lots of empathetic words too, sort of saying things 52 00:02:57,809 --> 00:03:01,350 Cherelle Murphy: that perhaps previous governors of the Reserve Bank would not 53 00:03:01,350 --> 00:03:05,190 Cherelle Murphy: have done. So they've been working really hard clearly on 54 00:03:05,190 --> 00:03:08,100 Cherelle Murphy: their communication over the summer, I think. 55 00:03:08,669 --> 00:03:10,559 Sean Aylmer: I want to come back to the economy, but we've 56 00:03:10,559 --> 00:03:13,290 Sean Aylmer: veered into the press conference discussion, it's worth talking about. 57 00:03:13,679 --> 00:03:17,969 Sean Aylmer: For a non- seasoned media performer and Reserve Bank governors 58 00:03:17,969 --> 00:03:20,490 Sean Aylmer: have never seasoned media performers simply because they don't front 59 00:03:20,490 --> 00:03:23,460 Sean Aylmer: the media very often, I thought she did a pretty 60 00:03:23,460 --> 00:03:28,589 Sean Aylmer: good job of speaking fairly directly and the questions came 61 00:03:28,590 --> 00:03:31,380 Sean Aylmer: from very mum's and dad style questions to kind of 62 00:03:31,380 --> 00:03:34,559 Sean Aylmer: technical economic questions. She did a pretty good job, I think. 63 00:03:34,889 --> 00:03:37,800 Cherelle Murphy: She did, and I did note that the press room 64 00:03:37,800 --> 00:03:41,220 Cherelle Murphy: was full. Every man and his dog was there today. 65 00:03:42,180 --> 00:03:46,079 Cherelle Murphy: I was in Parliament House yesterday in fact, and noticed 66 00:03:46,080 --> 00:03:49,319 Cherelle Murphy: that all of the economic journalists weren't there because they 67 00:03:49,320 --> 00:03:52,289 Cherelle Murphy: had all flown to Sydney for this press conference. And 68 00:03:52,289 --> 00:03:55,230 Cherelle Murphy: so therefore she got a big range of questions from 69 00:03:55,680 --> 00:04:00,420 Cherelle Murphy: the quite technical ones from the sort of Reuters and Bloombergs and AFRs of 70 00:04:00,420 --> 00:04:04,830 Cherelle Murphy: the world right through to the more mainstream media, and 71 00:04:04,830 --> 00:04:07,260 Cherelle Murphy: actually I think dealt with all of that very well. 72 00:04:07,559 --> 00:04:11,309 Cherelle Murphy: She also had a very lovely style, which she naturally 73 00:04:11,309 --> 00:04:15,120 Cherelle Murphy: does. A nervous giggle at the beginning, as I guess 74 00:04:15,120 --> 00:04:17,789 Cherelle Murphy: everyone in the room acknowledged that this is a pretty 75 00:04:17,790 --> 00:04:20,698 Cherelle Murphy: historic moment, the first time that the central bank governor 76 00:04:20,700 --> 00:04:22,440 Cherelle Murphy: has had to do that. But yeah, I thought she 77 00:04:22,440 --> 00:04:23,070 Cherelle Murphy: did a great job. 78 00:04:23,790 --> 00:04:25,979 Sean Aylmer: Stay with me, Cherelle. We'll be back in a minute. 79 00:04:32,160 --> 00:04:35,520 Sean Aylmer: My guest this morning is EY Chief Economist Cherelle Murphy. 80 00:04:36,810 --> 00:04:39,119 Sean Aylmer: It also puts her under a bit of pressure to 81 00:04:39,150 --> 00:04:42,270 Sean Aylmer: say the right thing because we're used to scrutinizing every 82 00:04:42,270 --> 00:04:44,400 Sean Aylmer: single word that comes out of a Reserve Bank governor, 83 00:04:44,759 --> 00:04:47,490 Sean Aylmer: she's got to think on her feet from here on, 84 00:04:47,879 --> 00:04:50,190 Sean Aylmer: and that's not always easy. There was a very directed 85 00:04:50,190 --> 00:04:53,940 Sean Aylmer: question about when is the next interest rate cut? And 86 00:04:53,940 --> 00:04:56,700 Sean Aylmer: she was very definitive saying, " We're not giving any timing 87 00:04:56,700 --> 00:05:00,270 Sean Aylmer: on that." Now, her predecessor, Phil Lowe was crucified on 88 00:05:00,599 --> 00:05:03,270 Sean Aylmer: giving a timing that didn't work out. There is a 89 00:05:03,270 --> 00:05:06,599 Sean Aylmer: risk though that we're going to get too much from 90 00:05:06,600 --> 00:05:07,469 Sean Aylmer: her, I would've thought. 91 00:05:08,339 --> 00:05:11,279 Cherelle Murphy: Yeah, it's a very fine line, isn't it? And it 92 00:05:11,279 --> 00:05:14,519 Cherelle Murphy: goes back to the credibility point again. She can't give 93 00:05:14,520 --> 00:05:18,390 Cherelle Murphy: too much away because if she gives away something accidentally, 94 00:05:18,719 --> 00:05:20,969 Cherelle Murphy: they have to follow through because if they don't follow 95 00:05:20,969 --> 00:05:25,440 Cherelle Murphy: through, the credibility comes under question. Being too evasive or 96 00:05:25,440 --> 00:05:29,880 Cherelle Murphy: not answering questions also gets read perhaps the wrong way 97 00:05:29,880 --> 00:05:34,410 Cherelle Murphy: by the market or the more mainstream media as well. 98 00:05:34,410 --> 00:05:39,599 Cherelle Murphy: So it's a really tricky press conference to execute beautifully, 99 00:05:39,599 --> 00:05:41,549 Cherelle Murphy: and as we saw today, it does go on for 100 00:05:41,549 --> 00:05:44,820 Cherelle Murphy: some time. So a lot of discipline needed there from 101 00:05:44,820 --> 00:05:48,870 Cherelle Murphy: the governor to make sure she's on message every single 102 00:05:48,870 --> 00:05:50,490 Cherelle Murphy: word of that press conference. 103 00:05:51,389 --> 00:05:53,008 Sean Aylmer: Yeah. Well, let's hope she does well in the next 104 00:05:53,070 --> 00:05:55,379 Sean Aylmer: few coming up. I want to go back to the 105 00:05:55,380 --> 00:05:59,069 Sean Aylmer: economy, Cherelle. What about the forecast that the Reserve Bank put 106 00:05:59,070 --> 00:06:03,660 Sean Aylmer: out, and particularly the inflation forecast? Obviously they think inflation 107 00:06:03,660 --> 00:06:07,230 Sean Aylmer: is falling faster than their previous forecast. Fair enough. CPI 108 00:06:07,320 --> 00:06:09,988 Sean Aylmer: figures last week showed that. But it's kind of like 109 00:06:09,990 --> 00:06:12,839 Sean Aylmer: the last mile. That they reckon inflation will get down 110 00:06:12,839 --> 00:06:16,529 Sean Aylmer: close to 3%, but fairly quickly, but then after that, 111 00:06:16,529 --> 00:06:20,099 Sean Aylmer: it'll take a long time to hit their mid- target range. 112 00:06:21,060 --> 00:06:25,050 Cherelle Murphy: Yeah, it's sort of a painful drawn out process. You 113 00:06:25,050 --> 00:06:30,239 Cherelle Murphy: can get inflation down from 7% to 4% reasonably quickly, 114 00:06:30,240 --> 00:06:34,589 Cherelle Murphy: but that last percentage point is very difficult. And the 115 00:06:34,589 --> 00:06:39,180 Cherelle Murphy: Reserve Bank's forecast update yesterday showed us that they have 116 00:06:39,180 --> 00:06:42,779 Cherelle Murphy: taken the inflation forecast down a notch really across the 117 00:06:42,779 --> 00:06:46,380 Cherelle Murphy: whole forecast period, but it doesn't mean it gets to 118 00:06:46,380 --> 00:06:50,490 Cherelle Murphy: the end point, so the 2. 5% or the mid- target 119 00:06:50,490 --> 00:06:54,089 Cherelle Murphy: band any quicker. So it's sort of like a step 120 00:06:54,089 --> 00:06:57,870 Cherelle Murphy: down, but no shortening of the move towards the target 121 00:06:57,870 --> 00:07:03,029 Cherelle Murphy: band. It still takes till about mid- 2026 to get 122 00:07:03,029 --> 00:07:04,558 Cherelle Murphy: inflation where they want it to be. 123 00:07:05,130 --> 00:07:08,039 Sean Aylmer: A lot of talk of excess demand. Now, for most 124 00:07:08,130 --> 00:07:11,909 Sean Aylmer: people, excess demand doesn't really mean much. For economists like 125 00:07:11,910 --> 00:07:15,330 Sean Aylmer: yourself, excess demand is everything. Well, not everything, but very 126 00:07:15,330 --> 00:07:19,080 Sean Aylmer: important. Michele Bullock spoke about it yesterday. Just explain that 127 00:07:19,080 --> 00:07:21,300 Sean Aylmer: to us, is the fact that okay, things are slowing 128 00:07:21,300 --> 00:07:23,610 Sean Aylmer: and that, but there's still people doing stuff in the 129 00:07:23,610 --> 00:07:25,500 Sean Aylmer: economy. What is excess demand? 130 00:07:26,460 --> 00:07:30,209 Cherelle Murphy: Well, I mean, it's all relative to supply. So what 131 00:07:30,300 --> 00:07:32,940 Cherelle Murphy: we have been talking about through most of our careers, 132 00:07:32,940 --> 00:07:34,890 Cherelle Murphy: Sean, is that the fact that we've kind of had 133 00:07:34,890 --> 00:07:38,340 Cherelle Murphy: to manage demand, often trying to push demand up in 134 00:07:38,340 --> 00:07:42,479 Cherelle Murphy: fact to meet supply in the economy, to prevent unemployment. 135 00:07:43,020 --> 00:07:47,669 Cherelle Murphy: And at the moment, or since the COVID explosion of 136 00:07:47,670 --> 00:07:52,110 Cherelle Murphy: activity or mid- COVID explosion of activity, what we've actually 137 00:07:52,110 --> 00:07:56,340 Cherelle Murphy: had is demand exceed supply. And that's excess demand. It's 138 00:07:56,340 --> 00:08:00,630 Cherelle Murphy: demand growing beyond the capacity of the economy to meet 139 00:08:00,630 --> 00:08:05,699 Cherelle Murphy: it. So in managing demand, what the Reserve Bank is 140 00:08:05,699 --> 00:08:08,430 Cherelle Murphy: trying to do in this case is slow it down 141 00:08:08,820 --> 00:08:11,100 Cherelle Murphy: to the point where it can meet supply. Because when 142 00:08:11,100 --> 00:08:14,880 Cherelle Murphy: it's at that point, then the economy is humming along 143 00:08:14,880 --> 00:08:17,940 Cherelle Murphy: nicely. It's not creating too much inflation and hopefully it's 144 00:08:17,940 --> 00:08:22,078 Cherelle Murphy: also maintaining full employment. So most people who want a 145 00:08:22,080 --> 00:08:25,710 Cherelle Murphy: job are in one. So I think at the moment 146 00:08:26,460 --> 00:08:29,460 Cherelle Murphy: the Reserve Bank's still trying to find that kind of 147 00:08:29,580 --> 00:08:31,980 Cherelle Murphy: equilibrium point, and that's the kind of year that we 148 00:08:31,980 --> 00:08:35,700 Cherelle Murphy: will go through is fine tuning to get to that equilibrium. 149 00:08:36,570 --> 00:08:40,740 Sean Aylmer: Okay. So what's that mean for interest rates? Michele Bullock 150 00:08:40,740 --> 00:08:43,319 Sean Aylmer: was asked yesterday, she didn't give an answer. She can 151 00:08:43,320 --> 00:08:46,858 Sean Aylmer: avoid it. Harder for you, Cherelle, to avoid this one. What do you reckon will happen to 152 00:08:46,860 --> 00:08:47,640 Sean Aylmer: rates this year? 153 00:08:47,880 --> 00:08:51,001 Cherelle Murphy: It is harder for me to avoid it. The (inaudible) 154 00:08:51,001 --> 00:08:56,280 Cherelle Murphy: is probably not quite as high, though. I think 155 00:08:56,520 --> 00:08:58,739 Cherelle Murphy: it is definitely possible that we see a rate cut 156 00:08:58,740 --> 00:09:01,439 Cherelle Murphy: by the end of the year as the market expects. 157 00:09:01,440 --> 00:09:04,228 Cherelle Murphy: The market's got two 25 basis point cuts pretty much 158 00:09:04,230 --> 00:09:07,559 Cherelle Murphy: priced in. Most economists in the market have forecast at 159 00:09:07,559 --> 00:09:10,860 Cherelle Murphy: least one 25 basis point cut by the time next 160 00:09:10,860 --> 00:09:15,960 Cherelle Murphy: summer holidays roll around. I think though that the risks 161 00:09:16,260 --> 00:09:19,890 Cherelle Murphy: that the cash rate stays at 4. 35% are very 162 00:09:19,890 --> 00:09:23,520 Cherelle Murphy: high. So in other words, I'm thinking about it from 163 00:09:23,520 --> 00:09:25,740 Cherelle Murphy: the point of view of why would the Reserve Bank 164 00:09:25,740 --> 00:09:30,929 Cherelle Murphy: cut rates when it's got inflation clearly above where it 165 00:09:30,929 --> 00:09:34,289 Cherelle Murphy: would like it to be. It's above the band. There 166 00:09:34,289 --> 00:09:38,520 Cherelle Murphy: are many inflation risks on the horizon still. We've got 167 00:09:38,520 --> 00:09:42,300 Cherelle Murphy: a strong labor market, we've got a very strong housing 168 00:09:42,300 --> 00:09:46,770 Cherelle Murphy: market, we've got many international factors that may come into 169 00:09:46,770 --> 00:09:50,009 Cherelle Murphy: the equation and push inflation higher. So think about global 170 00:09:50,009 --> 00:09:53,670 Cherelle Murphy: shipping costs, the potential for energy prices to get pushed 171 00:09:53,670 --> 00:09:56,400 Cherelle Murphy: up by what's going on with the conflict in the 172 00:09:56,400 --> 00:10:00,718 Cherelle Murphy: Middle East and Ukraine. And then when we kind of 173 00:10:01,320 --> 00:10:05,909 Cherelle Murphy: put all those factors together plus climate change, these are 174 00:10:05,910 --> 00:10:10,619 Cherelle Murphy: more slow moving changes, but they certainly have many reasons 175 00:10:10,920 --> 00:10:13,320 Cherelle Murphy: or many ways in which they push prices up too. 176 00:10:13,830 --> 00:10:16,559 Cherelle Murphy: I just think that there's a lot adding up to 177 00:10:16,559 --> 00:10:22,530 Cherelle Murphy: say it's hard to see inflation come down quickly, sustainably, 178 00:10:22,980 --> 00:10:28,019 Cherelle Murphy: and smoothly. So unless the unemployment rate was moving up 179 00:10:28,020 --> 00:10:30,238 Cherelle Murphy: very quickly and the Reserve Bank felt like it had 180 00:10:30,240 --> 00:10:33,809 Cherelle Murphy: to rescue the economy on the downside, why would it 181 00:10:33,809 --> 00:10:37,620 Cherelle Murphy: risk its inflation target? And that's why I think rates 182 00:10:37,620 --> 00:10:40,799 Cherelle Murphy: on hold for a sustained period of time is the 183 00:10:40,800 --> 00:10:42,059 Cherelle Murphy: most likely outcome this year. 184 00:10:42,570 --> 00:10:44,700 Sean Aylmer: You've got a couple of young ladies in your family, 185 00:10:44,700 --> 00:10:48,809 Sean Aylmer: a couple of daughters. Are you experiencing Taylor Swift inflation 186 00:10:48,809 --> 00:10:49,228 Sean Aylmer: or not? 187 00:10:50,880 --> 00:10:57,959 Cherelle Murphy: I've got one son and one daughter. I'm sure my son would not enjoy if he got a young 188 00:10:57,960 --> 00:11:01,619 Cherelle Murphy: lady. He's 14, so. 189 00:11:02,040 --> 00:11:03,329 Sean Aylmer: He might like Taylor Swift, though. 190 00:11:03,420 --> 00:11:05,848 Cherelle Murphy: Well, yeah, he does. Everyone loves Taylor Swift, don't they? 191 00:11:05,849 --> 00:11:05,910 Sean Aylmer: Yeah, that's true. That's true. Yeah. 192 00:11:08,070 --> 00:11:10,980 Cherelle Murphy: Unfortunately, we are not experiencing Taylor Swift inflation because we 193 00:11:10,980 --> 00:11:12,870 Cherelle Murphy: were not lucky enough to get tickets. And so all 194 00:11:12,870 --> 00:11:17,940 Cherelle Murphy: the paraphernalia that goes with it is absent from my 195 00:11:17,940 --> 00:11:21,030 Cherelle Murphy: house, but I think I'm probably the worst offender, Sean. 196 00:11:21,030 --> 00:11:23,040 Cherelle Murphy: I'm probably the biggest fan in the household, so. 197 00:11:23,370 --> 00:11:26,309 Sean Aylmer: Is that right? I'm a bit relieved that my daughter didn't 198 00:11:26,309 --> 00:11:28,588 Sean Aylmer: get Taylor Swift tickets, because as you said, that saved 199 00:11:28,590 --> 00:11:30,900 Sean Aylmer: me not just the cost of the tickets, but everything 200 00:11:30,900 --> 00:11:34,139 Sean Aylmer: that goes with it. Fair bit in that, Cherelle. Thank 201 00:11:34,139 --> 00:11:35,700 Sean Aylmer: you very much for talking to Fear and Greed. 202 00:11:35,969 --> 00:11:36,900 Cherelle Murphy: My pleasure, Sean. 203 00:11:37,259 --> 00:11:39,990 Sean Aylmer: That was EY Chief Economist Cherelle Murphy. This is the 204 00:11:39,990 --> 00:11:42,270 Sean Aylmer: Fear and Greed business interview. Join us every morning for 205 00:11:42,270 --> 00:11:45,090 Sean Aylmer: the full episode of Fear and Greed, Australia's best business 206 00:11:45,090 --> 00:11:47,670 Sean Aylmer: podcast. I'm Sean Aylmer. Have a great day.