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Speaker 1: Now Australia, the cash rate has gone up for the

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Speaker 1: first time in more than two years. There it's Reserve

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Speaker 1: Bank has raised it by twenty five basis points. It's

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Speaker 1: now sitting at three point eighty five percent. So HSBC's

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Speaker 1: chief economist Paul Bloxham is with us on this high Paul,

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Speaker 1: do you think they've made the right call?

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Speaker 2: I think they needed to lift interest rates today. I

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Speaker 2: don't think there were any options. Really, Inflation is above

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Speaker 2: where the Reserve Bank can handle it. It's well above

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Speaker 2: their target. Growth is in an upswing. We're operating at

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Speaker 2: full capacity. The only thing that was going to get

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Speaker 2: inflation or is going to get inflation to head back

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Speaker 2: towards the RBA's target is going to be is tied

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Speaker 2: a monetary policy. So I don't think they really had

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Speaker 2: any choice today. I think they had to lift the

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Speaker 2: policy rate.

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Speaker 1: There is I mean, I mean it seems to be

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Speaker 1: a minority view, but there is a view amongst some

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Speaker 1: economists that the inflation rises a blip and the forces

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Speaker 1: that are driving it are unwinding all by themselves. You

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Speaker 1: got the electricity prices going yet the dollars high, so

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Speaker 1: the imported goods are cheaper and so on. Does that

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Speaker 1: have any ability will hold any water with you?

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Speaker 2: I think we've had two consecutive quarters now of the

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Speaker 2: key underlying measure, the trim mean which the RBA focuses on,

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Speaker 2: that have been high prints. So we got a three

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Speaker 2: thirty print that was at one percent in the quarter,

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Speaker 2: and then a fourth quarter print that turned out to

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Speaker 2: zero point nine. And the year end year eight is

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Speaker 2: run year on year rate is running at three point four.

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Speaker 2: The RBA targets two to three percent. So we've had

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Speaker 2: six months, two consecutive quarters of you know, well above

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Speaker 2: target inflation. I think the RBA didn't have any choice,

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Speaker 2: and I think it's not just the only story. As

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Speaker 2: I said, it's that the labor market, the jobs market's

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Speaker 2: actually quite tight, the unemployment rate's quite low, and growth

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Speaker 2: in and upswing as well. I think the RBA needed

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Speaker 2: to lift rates today and they have. They've lifted the

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Speaker 2: policy rate with the intention of slowing the economy down

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Speaker 2: to get inflation to head back to target.

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Speaker 1: Oh, can let me read this line to you that

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Speaker 1: the Reserve Bank Australia has been forced to lift rates

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Speaker 1: to try to tame inflation in an economy growing only

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Speaker 1: modestly should worry households, politicians and instas. What do you

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Speaker 1: think of that?

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Speaker 2: I absolutely agree with that that we are in a

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Speaker 2: situation where we haven't we've only had a modest growth upswing,

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Speaker 2: and it's delivered to pick up an inflation that's excessive.

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Speaker 2: And what that means is demand in the economy is

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Speaker 2: already racing ahead of supply, not because demand is strong.

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Speaker 2: It's not the economy is in a strong upswing. It's

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Speaker 2: that the supply side of the economy is weak. It's

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Speaker 2: that productivity growth has been persistently weak, and that's left

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Speaker 2: us with an economy which has got a lower speed

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Speaker 2: limit than it's had in the past. You know, the

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Speaker 2: RBA's assessment is that the speed limit for growing the

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Speaker 2: Australian economy now is two percent. We think it's probably

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Speaker 2: a little bit below two percent, and that's not a

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Speaker 2: great outcome. That that's the pace of growth, that's the

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Speaker 2: maximum pace of growth in the economy before that we

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Speaker 2: can have before it starts to deliver excessive inflation. So

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Speaker 2: it doesn't change the fact that the RBA has to

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Speaker 2: try to sort of manage demand to grow in line

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Speaker 2: with that sort of weaker supply side. What it should

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Speaker 2: do is remind us all that actually the imperative, the focus,

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Speaker 2: the policy focus needs to be on doing things reform

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Speaker 2: that can lift productivity. So all of the sort of

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Speaker 2: pro growth reforms we talk about all the time, tax reform, deregulation,

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Speaker 2: looking at the competition, competition in the economy, looking at

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Speaker 2: the industry relation system. These are all the things that

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Speaker 2: we can do to try to get the economy to

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Speaker 2: be able to grow a bit faster so the pie

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Speaker 2: can grow a bit faster. But the RBA didn't have

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Speaker 2: any option today because, as I said, even a modest

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Speaker 2: upswinging growth has generated excessive inflation, and so the RBA

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Speaker 2: has got to get that inflation heading back to target.

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Speaker 1: Okay, so Michelle Bullock was talking today about consecutive rate rises,

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Speaker 1: what are you pecking?

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Speaker 2: I think the RBA is going to have to deliver

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Speaker 2: another tightening, yet I don't think it's going to happen

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Speaker 2: necessarily at the next meeting. I think the RBA is

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Speaker 2: going to be quite cautious. She did talk about that

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Speaker 2: as well, about the fact that the board's going to

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Speaker 2: want to be quite cautious. I think they're going to

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Speaker 2: want to have a bit of time to judge how

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Speaker 2: much impact this tightening has delivered, because in some ways

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Speaker 2: the whole story's turned around really quickly. I mean, you know,

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Speaker 2: back in October last year, we were all thinking, well,

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Speaker 2: the market was expecting rate cuts and we were in

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Speaker 2: an easing phase, and of course now we're in February

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Speaker 2: and we've lifted rates. So I think it's going to

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Speaker 2: take a bit of time to see how much impact

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Speaker 2: this tightening delivers into the economy. And I think they're

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Speaker 2: going to want to be cautious, so I think they'll

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Speaker 2: draw it out. But I do think we'll get to

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Speaker 2: sort of later in the year and I'll probably have

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Speaker 2: to deliver a bit more tightening to get inflation to

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Speaker 2: come back to target.

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Speaker 1: Paul I saw somebody was writing in one of the

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Speaker 1: New Zealand media. I think I'm going to be a

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Speaker 1: business desk over here saying, well, you know, this does

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Speaker 1: call into question now whether our Reserve Bank is going

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Speaker 1: to think, geez, we better start doing it as well

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Speaker 1: and potentially look at lifting in a couple of weeks time.

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Speaker 1: Are they on the money or getting ahead of their

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Speaker 1: skis on that.

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Speaker 2: I think that the story is very different. In New Zealand,

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Speaker 2: you've had a much bigger cycle. You've had a much

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Speaker 2: bigger downturn in the face of the interest rate rises

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Speaker 2: that were larger earlier on, and that's been sustained and

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Speaker 2: now you're in this upswing. Inflation is starting to rise

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Speaker 2: as well. I think the core measures starting to rise,

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Speaker 2: and I do think the RBNZ is going to have

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Speaker 2: to lift interest rates, but I don't think it's going

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Speaker 2: to come quite as soon as that. Now we've got

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Speaker 2: in mind that we'll see the rban Z starting to

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Speaker 2: lift interest rates in the second half of this year.

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Speaker 2: We think that the rate hikes will start in the

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Speaker 2: third quarter. But if you take a global perspective, that

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Speaker 2: means that both Australia and New Zealand will be pretty

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Speaker 2: early will be the first two G ten central banks

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Speaker 2: to be lifting rates, aside from Japan, which is a

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Speaker 2: very sort of different story.

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Speaker 1: Yeah, that's actually a very good point. And Paul as

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Speaker 1: always lovely to chat to you. Thank you so much, mate,

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Speaker 1: look after yourself. Paul Bloxham, HSBC's chief economist.

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