1 00:00:00,120 --> 00:00:03,480 Speaker 1: Now Australia's Reserve Bank announced a twenty five basis point 2 00:00:03,560 --> 00:00:05,840 Speaker 1: increase in its official cash rate today to four point 3 00:00:05,840 --> 00:00:08,320 Speaker 1: one percent as a couple of hours ago now, HSBC 4 00:00:08,480 --> 00:00:10,920 Speaker 1: Chief economist Paul Bloxham has of course been watching at 5 00:00:10,960 --> 00:00:15,760 Speaker 1: high pool right. So not unexpected the RBA lifting the rates, 6 00:00:15,760 --> 00:00:18,480 Speaker 1: But pretty unusual globally, isn't it. 7 00:00:18,480 --> 00:00:21,160 Speaker 2: It is is very unusual if you look across what's 8 00:00:21,160 --> 00:00:24,120 Speaker 2: happening this week. We've got a whole range of central 9 00:00:24,160 --> 00:00:26,759 Speaker 2: banks meeting. We've got the US Central Bank, the Federal Reserve, 10 00:00:26,840 --> 00:00:29,640 Speaker 2: that the Bank of England, the ECB, the Bank of 11 00:00:29,720 --> 00:00:32,920 Speaker 2: Japan and a few others, and they're not expected to 12 00:00:32,960 --> 00:00:35,600 Speaker 2: do anything with their policy rate. That's the market expectation, 13 00:00:35,680 --> 00:00:38,720 Speaker 2: that's our view as well. But the RBA is the 14 00:00:38,760 --> 00:00:41,519 Speaker 2: odd man out, the odd one out, having lifted its 15 00:00:41,520 --> 00:00:44,080 Speaker 2: policy rate today in fact, you know, not just lifted it. 16 00:00:44,080 --> 00:00:45,840 Speaker 2: It lifted it in February and it's lifted it again 17 00:00:45,880 --> 00:00:49,040 Speaker 2: in March. Australia is in a different spot to all 18 00:00:49,040 --> 00:00:51,680 Speaker 2: of these other places right now, and I think a 19 00:00:51,720 --> 00:00:53,199 Speaker 2: lot of it is domestic, a lot of it is 20 00:00:53,240 --> 00:00:56,280 Speaker 2: a unique story. Australia has got an economy that is 21 00:00:56,280 --> 00:00:59,960 Speaker 2: growing too quickly for its supply capacity, so it's running 22 00:01:00,000 --> 00:01:02,360 Speaker 2: well ahead of its speed limit, and that has delivered 23 00:01:02,440 --> 00:01:06,280 Speaker 2: domestic inflation that is too high, and the RBA has 24 00:01:06,360 --> 00:01:09,400 Speaker 2: needed to take action to seek to slow the economy down. 25 00:01:09,440 --> 00:01:11,120 Speaker 2: That's what they've done, and that's what they did again 26 00:01:11,160 --> 00:01:12,479 Speaker 2: today with their rate rice. 27 00:01:12,840 --> 00:01:14,720 Speaker 1: Yeah, but obviously what this is going to do is 28 00:01:14,920 --> 00:01:17,200 Speaker 1: and we as you well know, is going to put 29 00:01:17,240 --> 00:01:19,480 Speaker 1: a dampner on GDP. And I hear that there's already 30 00:01:19,520 --> 00:01:22,600 Speaker 1: talk about recession. Is that a realistic possibility for Australia. 31 00:01:23,680 --> 00:01:25,560 Speaker 2: Well, I think what we can say right now is 32 00:01:25,600 --> 00:01:28,399 Speaker 2: Australia needs to have an economic downturn. You have to 33 00:01:28,400 --> 00:01:30,959 Speaker 2: have a slow down. There's really it would be very 34 00:01:31,000 --> 00:01:33,360 Speaker 2: hard to get inflation down without having a slow down 35 00:01:33,360 --> 00:01:34,920 Speaker 2: in the economy at this point. So I think that 36 00:01:34,959 --> 00:01:37,959 Speaker 2: we can be confident of the RBA's lifted interest rates. 37 00:01:38,240 --> 00:01:41,000 Speaker 2: That's going to slow the economy down. That's the mechanism 38 00:01:41,080 --> 00:01:44,280 Speaker 2: for getting inflation to come down. The question is how 39 00:01:44,280 --> 00:01:46,440 Speaker 2: big a slow down is it, how big a downturn 40 00:01:46,560 --> 00:01:48,400 Speaker 2: is it, Will it actually turn out to be a 41 00:01:48,400 --> 00:01:51,000 Speaker 2: recession or not? And I think that's a much more 42 00:01:51,000 --> 00:01:53,840 Speaker 2: difficult question to answer. I think the risk of it 43 00:01:53,880 --> 00:01:57,280 Speaker 2: has risen, but it's more difficult to answer because not 44 00:01:57,480 --> 00:01:59,760 Speaker 2: only does it depend obviously on the domestic story, but 45 00:02:00,000 --> 00:02:02,200 Speaker 2: depends on the global story and what's going on right now, 46 00:02:02,240 --> 00:02:06,120 Speaker 2: I'm sure is highly uncertain. Sharp rise and oil prices 47 00:02:06,160 --> 00:02:08,920 Speaker 2: is a key feature of that, and the longer it 48 00:02:08,960 --> 00:02:11,320 Speaker 2: goes on, the more it creates a risk that that 49 00:02:11,400 --> 00:02:13,520 Speaker 2: could deliver a bigger downturn from the rest of the 50 00:02:13,520 --> 00:02:15,839 Speaker 2: world that then feeds through to Australia and in fact 51 00:02:15,880 --> 00:02:18,920 Speaker 2: feeds through to New Zealand as well. I mean, that's 52 00:02:18,960 --> 00:02:21,160 Speaker 2: why it's tricky to really have a definitive answer. Our 53 00:02:21,200 --> 00:02:23,120 Speaker 2: central case is no for the moment, but I think 54 00:02:23,360 --> 00:02:25,079 Speaker 2: the risks are tilted to the downside. 55 00:02:25,639 --> 00:02:29,280 Speaker 1: Is that no recession for Australia or no recession for 56 00:02:29,280 --> 00:02:30,680 Speaker 1: Australia and New Zealand. 57 00:02:32,000 --> 00:02:34,520 Speaker 2: We're not forecasting at the moment a recession in either 58 00:02:34,560 --> 00:02:37,800 Speaker 2: of those countries. But I think what we need to 59 00:02:37,800 --> 00:02:40,160 Speaker 2: be aware of is that there's a lot of uncertainty 60 00:02:40,160 --> 00:02:44,480 Speaker 2: in the overall global story right now and that could 61 00:02:44,520 --> 00:02:48,280 Speaker 2: possibly deliver weaker conditions, and in Australia's case, if we 62 00:02:48,320 --> 00:02:50,520 Speaker 2: go back to Australia. What we can say with some 63 00:02:50,600 --> 00:02:55,600 Speaker 2: confidence is Australia has to have a downturn because otherwise 64 00:02:55,720 --> 00:02:58,080 Speaker 2: it's hard to see how inflation is going to come down. 65 00:02:58,120 --> 00:03:00,880 Speaker 2: And the RBA is in the process of making that 66 00:03:00,960 --> 00:03:04,080 Speaker 2: happen by lifting interest rates twice already to sleep, to 67 00:03:04,080 --> 00:03:06,520 Speaker 2: slow the economy down, to deliver a downturn. So once 68 00:03:06,560 --> 00:03:09,000 Speaker 2: you're in a downturn, if it gets big enough, that 69 00:03:09,080 --> 00:03:11,200 Speaker 2: of course is what you start to call a recession. 70 00:03:11,240 --> 00:03:12,720 Speaker 2: I mean, if it gets deep enough you have an 71 00:03:12,760 --> 00:03:14,760 Speaker 2: actual contraction and you have a sharp enough rise in 72 00:03:14,800 --> 00:03:17,640 Speaker 2: the uneployment rate. That's not our central case at the moment, 73 00:03:17,880 --> 00:03:20,120 Speaker 2: but I think the chance of it is rising. I 74 00:03:20,120 --> 00:03:22,240 Speaker 2: think in a New Zealand's case, actually you're in a 75 00:03:22,240 --> 00:03:24,880 Speaker 2: little bit better shape for dealing with the shop that's 76 00:03:24,919 --> 00:03:28,720 Speaker 2: currently arriving. And that's partly because you've brought inflation already 77 00:03:28,760 --> 00:03:31,919 Speaker 2: back down into the Reserve Banks target band. Australia has 78 00:03:31,960 --> 00:03:34,720 Speaker 2: got starts off with inflation that's too high, and so 79 00:03:34,800 --> 00:03:37,640 Speaker 2: it's dealing with the domestic problem as well as what's 80 00:03:37,640 --> 00:03:40,440 Speaker 2: happening globally. And there is spare capacity in the New 81 00:03:40,520 --> 00:03:44,040 Speaker 2: Zealand economy, so there's still scope to go either way 82 00:03:44,080 --> 00:03:46,200 Speaker 2: with interest rates. It's harder, I think in Australia to 83 00:03:46,200 --> 00:03:48,000 Speaker 2: think that the RBA can do that. They've got an 84 00:03:48,000 --> 00:03:50,920 Speaker 2: economy that's already at its limits, beyond its limits in 85 00:03:51,000 --> 00:03:52,760 Speaker 2: terms of where it's how it's growing. 86 00:03:53,080 --> 00:03:56,000 Speaker 1: This is a political question for you because we have 87 00:03:56,040 --> 00:03:58,520 Speaker 1: an election coming up in November and given what you're 88 00:03:58,520 --> 00:04:01,400 Speaker 1: seeing happen over in Iran and the lag effect, should 89 00:04:01,400 --> 00:04:03,600 Speaker 1: we expect that this is all washed out and through 90 00:04:03,600 --> 00:04:05,680 Speaker 1: the system in eight months or are we still dealing 91 00:04:05,680 --> 00:04:07,720 Speaker 1: in November with the stuff that's going on over there 92 00:04:07,760 --> 00:04:08,200 Speaker 1: right now. 93 00:04:09,400 --> 00:04:11,880 Speaker 2: Oh? I think that's an extraordinarily hard question to answer. 94 00:04:11,920 --> 00:04:14,680 Speaker 2: I wouldn't know where to start. We need to What 95 00:04:14,720 --> 00:04:16,200 Speaker 2: we need to do is think about the things we 96 00:04:16,240 --> 00:04:18,760 Speaker 2: know the answer to, so we know we don't know 97 00:04:18,880 --> 00:04:21,479 Speaker 2: the answer to that, so we have to sort of 98 00:04:21,480 --> 00:04:23,839 Speaker 2: work out what the right questions are. I mean, how 99 00:04:23,880 --> 00:04:25,520 Speaker 2: long it goes on for is going to be the 100 00:04:25,560 --> 00:04:28,880 Speaker 2: fundamental deciding factor as to how much it continues to 101 00:04:28,920 --> 00:04:32,640 Speaker 2: deliver upward pressure on oil prices. And that's the big 102 00:04:32,839 --> 00:04:35,480 Speaker 2: feature of how this has an impact and feeds through 103 00:04:35,480 --> 00:04:37,960 Speaker 2: to the Australian and New Zealand economies, and I think 104 00:04:38,000 --> 00:04:43,080 Speaker 2: the risk that it oil prices stay higher for longer, 105 00:04:44,720 --> 00:04:46,440 Speaker 2: and so we need to be just aware of that. 106 00:04:46,600 --> 00:04:48,560 Speaker 2: And then the question would be, well, how would you 107 00:04:48,640 --> 00:04:51,080 Speaker 2: respond to it if you were a policymaker, And I 108 00:04:51,120 --> 00:04:54,560 Speaker 2: would say, in Australia's case, we've already got an inflation 109 00:04:54,640 --> 00:04:57,320 Speaker 2: problem even before this arrived, and so that's why the 110 00:04:57,400 --> 00:05:00,320 Speaker 2: RBA is lifting interest rates at the moment. That means 111 00:05:00,360 --> 00:05:03,080 Speaker 2: that we have to have a downturn. In New Zealand's case, 112 00:05:03,120 --> 00:05:06,160 Speaker 2: I think inflation is already back in the target band, 113 00:05:06,320 --> 00:05:08,520 Speaker 2: or has been very on a core basis, it's in 114 00:05:08,520 --> 00:05:11,080 Speaker 2: the target band. So there's a bit more room to 115 00:05:11,160 --> 00:05:13,640 Speaker 2: move in terms of being able to support the economy 116 00:05:13,640 --> 00:05:17,719 Speaker 2: if needed at some point. And the same with fiscal 117 00:05:17,760 --> 00:05:20,599 Speaker 2: policy in terms of Australia. We have to when we 118 00:05:20,760 --> 00:05:23,040 Speaker 2: head towards the May Budget, which is going to be 119 00:05:23,040 --> 00:05:25,599 Speaker 2: a big focus in Australia, the May Budget has to 120 00:05:25,640 --> 00:05:28,520 Speaker 2: be careful not to boost the economy too much and 121 00:05:28,640 --> 00:05:31,960 Speaker 2: drive more inflation at a time when we're already operating 122 00:05:32,000 --> 00:05:35,320 Speaker 2: beyond capacity. New Zealand's got a bit more scope, there's 123 00:05:35,360 --> 00:05:38,479 Speaker 2: a there's spare capacity in the economy, so there's a 124 00:05:38,480 --> 00:05:40,599 Speaker 2: bit more riggle room perhaps on the fiscal side. 125 00:05:40,640 --> 00:05:42,240 Speaker 1: Yeah, pleased to hear it. Hey, Paul, thank you was 126 00:05:42,240 --> 00:05:45,200 Speaker 1: always appreciated. Paul Block, some hspc's chief economist. 127 00:05:45,560 --> 00:05:48,720 Speaker 2: For more from Hither Duplessy Allen Drive, listen live to 128 00:05:48,839 --> 00:05:51,880 Speaker 2: news talks. It'd be from four pm weekdays, or follow 129 00:05:51,920 --> 00:05:53,680 Speaker 2: the podcast on iHeartRadio.