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Speaker 1: Welcome to Fear and Greed Q and A where we

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Speaker 1: ask and answer questions about business, investing, economics, politics and more.

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Speaker 1: I'm Natalie McDonald and today the RBA has cut interest rates,

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Speaker 1: but how much further will they go? Belinda Allen is

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Speaker 1: a senior economist at Commonwealth Bank. Belinda, Welcome to Fear and.

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Speaker 2: Greed Q and A Hi Nadlie, Great debay.

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Speaker 1: He Now, first things first, I'd love to know were

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Speaker 1: there any surprises for you out of the Reserve Bank

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Speaker 1: announcement yesterday?

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Speaker 2: Certainly not on the cash right move. All economists, markets

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Speaker 2: are fully priced to expect that cash right cut in August.

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Speaker 2: Probably where the big surprise was was in the forecast

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Speaker 2: were refresh and there was a word that kept coming

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Speaker 2: up in the questions the Governor got asked yesterday, and

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Speaker 2: that was all around productivity. The Reserve Bank lowered its

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Speaker 2: productivity growth forecasts, which means potential growth in Australia of

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Speaker 2: the next couple years now looks a little bit softer.

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Speaker 2: But that's like a different topic. In terms of the

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Speaker 2: cash rate, no surprise.

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Speaker 1: But what we did have last time was a real

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Speaker 1: shock from the RBA by keeping rates on hold since then,

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Speaker 1: of course we've seen inflation for the June course to

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Speaker 1: come in soft than expected, an uptick in unemployment. It

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Speaker 1: begs the question did the Reserve Bank get it wrong

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Speaker 1: at the last meeting or would you agree with comments

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Speaker 1: that came through from the RBA governor that it was

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Speaker 1: appropriate timing.

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Speaker 2: Look, it was five weeks ago, and I think what

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Speaker 2: we've seen over that five week period is confirmation from

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Speaker 2: the data that the economy is evolving. How the RBA

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Speaker 2: expected five weeks probably doesn't mean too much in terms

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Speaker 2: of the impact of the lower cash rate on the economy.

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Speaker 2: It probably did impact sentiment and maybe led households and

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Speaker 2: businesses maybe to question how many more interest rate cuts

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Speaker 2: were going to get. But in hindsight, seeing the confidence

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Speaker 2: the LBA now has in the inflation outlook really shows

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Speaker 2: us that we'll get more rate cuts in the Australian economy.

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Speaker 1: Just on that, just to jump to the question of

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Speaker 1: the date, how many more rate cuts are you pricing

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Speaker 1: in at the moment and when are you anticipating them?

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Speaker 2: We have one more rate cut in our base case

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Speaker 2: scenario here at Commewealth's Bank. We do expect the Reserve

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Speaker 2: Bank to cut the cash right again in November. The

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Speaker 2: clear risk lies with an additional rate cut in twenty

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Speaker 2: twenty six. Although when we look at our forecast versus

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Speaker 2: the Reserve forecast, we are a little bit more optimistic

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Speaker 2: on the economic recovery here in Australian. I think we

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Speaker 2: can see a scenario where the Australian economy improves a

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Speaker 2: little bit faster, trimmed mean remains at the midpoint of

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Speaker 2: the Reserve Banks tiger bands, so they don't need to

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Speaker 2: go as low. Certainly. I can also see a scenario

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Speaker 2: where maybe the labor market deteriorates a little bit more

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Speaker 2: and the LBA does have to go a little bit

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Speaker 2: steeper into an easing cycle next year.

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Speaker 1: And that does speak to some of the really interesting

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Speaker 1: commentary that came out where with in terms of where

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Speaker 1: Australia sets versus some of our international pairs and the

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Speaker 1: idea that rates don't necessarily need to go as low

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Speaker 1: because we didn't go as high in the first place.

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Speaker 1: But there was some sort of pointed commentary towards the

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Speaker 1: Federal Reserve. What was your take on that.

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Speaker 2: I mean, it's a very different situation here in Australia

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Speaker 2: versus what's happening in the US. Obviously a lot of

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Speaker 2: question marks in the US about the independence of the

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Speaker 2: US Federal Reserve, about how many more interra straight cuts

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Speaker 2: will happen in the US versus here, and obviously the

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Speaker 2: influencer President Trump is trying to have on the US

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Speaker 2: Federal Reserve. We have a very different system here in Australia.

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Speaker 2: I think we can all agree, particularly after that on

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Speaker 2: whole decision in July, that we have a very independent

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Speaker 2: central bank and that can only be a really positive thing,

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Speaker 2: I think for policy make here in Australia.

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Speaker 1: So if we look at the economic calendar as it

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Speaker 1: stands today, we have wages data tomorrow, we've got the

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Speaker 1: labor force figures. What are you expecting? I think Matik

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Speaker 1: is that markets are really going to be looking for

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Speaker 1: this idea of will it reaffirm the irba's rate call

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Speaker 1: or is there going to be some of a source

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Speaker 1: of regret perhaps.

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Speaker 2: Well maybe not a source of regret, but maybe an

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Speaker 2: earlier rate cut. I think that's now what we in

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Speaker 2: the market are looking for is what could change that

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Speaker 2: quarterly cadence that the Reserve Bank has had so far

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Speaker 2: in terms of cutting the cash rate in twenty twenty five.

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Speaker 2: We know the Reserve Bank wants to look at the

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Speaker 2: quarterly CPI. We next get that at the end of October,

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Speaker 2: which means November is the most likely outcome for that

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Speaker 2: next rate cut. But as you said, we get some

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Speaker 2: really important data today and tomorrow, and I think in

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Speaker 2: particular that unemployment rate will be crucial. So we expect

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Speaker 2: the unemployment rate to stay part at four er point

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Speaker 2: three percent. If you see that continue to drift to

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Speaker 2: the upside, then you can certainly talk about, as I

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Speaker 2: said an earlier right Cup, potentially at that late September

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Speaker 2: board meeting, so that will be the focus. I think

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Speaker 2: looking at their data is just how the late market's

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Speaker 2: holding up after what has been two pretty soft reports.

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Speaker 1: Blinda, you mentioned earlier the comments around productivity really being

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Speaker 1: kind of that surprise. Of course, we are looking to

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Speaker 1: the roundtable to the Productivity Commission. The Reserve Bank governor

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Speaker 1: wouldn't be drawn on what her comments will be there,

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Speaker 1: But there's also this real line that there is only

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Speaker 1: so much the Reserve Bank can do and that that

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Speaker 1: idea of productivity really sits with government. Do you have

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Speaker 1: an idea or understanding of what models or policies could

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Speaker 1: be put in place to promote that.

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Speaker 2: It's interesting the Governor said she was going to be

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Speaker 2: there to set the scene, so certainly talk about the

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Speaker 2: macroeconomic landscape, and that has certainly been one that's been

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Speaker 2: a little bit softer the last couple of years in

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Speaker 2: terms of what we could see in terms of the

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Speaker 2: productivity summit. I certainly hope there's a lot of discussions

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Speaker 2: around what could generate improvements in business investment. We know

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Speaker 2: that's been one area lacking in the Australian economy of late.

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Speaker 2: Whether or not that's being driven by lack of consument

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Speaker 2: demand in the Australian economy, I think that's a big factor,

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Speaker 2: a lack of dynamism. And then also what are the

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Speaker 2: hurdles for businesses to invest at the moment? Is it

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Speaker 2: red tape, is it the taxation background. I think it's

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Speaker 2: unpacking all of those elements that could really see business

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Speaker 2: investment grow and working together to try to make that

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Speaker 2: as seamless as possible to drive business investment forward. So

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Speaker 2: I think I'm hoping that we certainly come to some

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Speaker 2: sort of consensus on what needs to be done to

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Speaker 2: unlock that as well as framing it in what we

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Speaker 2: know a government will probably want to ensure that any changes,

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Speaker 2: particularly around taxes, a budget neutral, if not budget positive,

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Speaker 2: So I think that's a framework we also need to

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Speaker 2: look at.

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Speaker 1: And Blinda, just quickly wanting to get your take in

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Speaker 1: terms of what this interest rate cut means for the

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Speaker 1: housing market. Are we going to see it supercharge in

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Speaker 1: terms of prices as we head into a spring selling season.

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Speaker 2: Perhaps, Look, it's a modest cutting cycle, so when we

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Speaker 2: look at our models on how to force us home

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Speaker 2: prices around one hundred basis point easing cycle should generate

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Speaker 2: around a ten percent increase in home prices, So that's

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Speaker 2: what we're working off. So far, we're looking like we're

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Speaker 2: on track for that. So we see around a six

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Speaker 2: percent lift in home prices this year, four percent next year.

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Speaker 2: It's been a pretty modest recovery to date. We haven't

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Speaker 2: seen a real acceleration in home price growth. We do

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Speaker 2: expect that to continue. There are still some challenges, of

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Speaker 2: course around housing affordability that could put a headwind on

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Speaker 2: expected price moves in the housing market, but we certainly

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Speaker 2: have seen the housing market respond to lower interest rates.

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Speaker 2: It's a momentum market. Of course it's going to respond

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Speaker 2: to interest rates, but at this point it looks like

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Speaker 2: it's been as expected in terms of the home price

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Speaker 2: recovery as interest rates do come down.

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Speaker 1: Belinda, appreciate your insights today. Thank you so much for

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Speaker 1: talking to Fear and Greed.

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Speaker 2: Great. Thank you.

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Speaker 1: That was Blinda Allen, senior economist at Commonwealth Bank. If

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Speaker 1: you've got something you'd like to know, then send through

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Speaker 1: your question on LinkedIn, Instagram, Facebook or at fearinngreed dot

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Speaker 1: com dot au. I'm Natalie matcdonald and this is Fear

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Speaker 1: and Greed Q and a