1 00:00:00,360 --> 00:00:04,640 Speaker 1: Ever, dup Clans Paul Blosom, hspc's chief economists in Sydney's 2 00:00:04,640 --> 00:00:07,920 Speaker 1: with us a Paul mate, we haven't spoken to you 3 00:00:07,960 --> 00:00:10,039 Speaker 1: since the big ocr call last week. What did you 4 00:00:10,080 --> 00:00:10,440 Speaker 1: make of that? 5 00:00:11,680 --> 00:00:14,120 Speaker 2: Well, it was a big change, wasn't it. You know 6 00:00:14,160 --> 00:00:16,120 Speaker 2: what we had in mind that the ARB and Z 7 00:00:16,200 --> 00:00:18,160 Speaker 2: would likely be cutting this year. In fact, we thought 8 00:00:18,160 --> 00:00:20,239 Speaker 2: they might cut in October, but we didn't quite think 9 00:00:20,239 --> 00:00:22,520 Speaker 2: it would be quite so soon. And most of that 10 00:00:22,560 --> 00:00:24,800 Speaker 2: came down to us listening to what they'd been saying. 11 00:00:24,840 --> 00:00:27,200 Speaker 2: They told us in May they were really worried about 12 00:00:27,200 --> 00:00:30,440 Speaker 2: domestic inflation, but the time we got to the August meeting, 13 00:00:30,480 --> 00:00:33,120 Speaker 2: of course they were cutting because they are more worried 14 00:00:33,120 --> 00:00:35,519 Speaker 2: about other things. So look, the story is a good 15 00:00:35,560 --> 00:00:38,400 Speaker 2: news story though in the end, you know, inflation is 16 00:00:38,440 --> 00:00:40,760 Speaker 2: coming down, and so the RB and z's got an 17 00:00:40,760 --> 00:00:43,400 Speaker 2: opportunity to start taking their foot off the break and 18 00:00:43,479 --> 00:00:45,320 Speaker 2: obviously there are other central banks around the world that 19 00:00:45,320 --> 00:00:47,880 Speaker 2: are doing that as well, and so that's a good 20 00:00:47,920 --> 00:00:50,240 Speaker 2: thing that there's going to be a bit more support 21 00:00:50,280 --> 00:00:52,800 Speaker 2: coming through the economy with loser monetary policy. 22 00:00:53,080 --> 00:00:54,960 Speaker 1: What do you reckon? They go, what was going on there? 23 00:00:55,000 --> 00:00:57,720 Speaker 1: Were they misreading the economy or were they bluffing? 24 00:00:59,080 --> 00:01:02,639 Speaker 2: Oh look, I Forard guidance has got lots of different functions, 25 00:01:02,840 --> 00:01:04,240 Speaker 2: you know, And that's what they were doing, right. They 26 00:01:04,240 --> 00:01:05,800 Speaker 2: were telling us what they thought they were going to 27 00:01:05,800 --> 00:01:08,479 Speaker 2: do with their policy rate. And one of the functions 28 00:01:08,640 --> 00:01:12,760 Speaker 2: is to manage expectations and sort of set the sort 29 00:01:12,760 --> 00:01:15,240 Speaker 2: of groundwork for what they want people to think they're 30 00:01:15,280 --> 00:01:17,360 Speaker 2: going to be doing and how that and that can 31 00:01:17,440 --> 00:01:20,120 Speaker 2: deliver tighter financial conditions. So there could be an element 32 00:01:20,160 --> 00:01:23,240 Speaker 2: of using that tool to tighten up and ensure that 33 00:01:23,280 --> 00:01:26,440 Speaker 2: inflation came down. The other thing that it's supposed to do, though, 34 00:01:26,520 --> 00:01:29,560 Speaker 2: is it supposed to give guidance to market as to 35 00:01:29,920 --> 00:01:32,880 Speaker 2: how the central bank responds to data when it comes out. 36 00:01:32,920 --> 00:01:35,920 Speaker 2: And so that's the challenge. The challenge is that it doesn't. 37 00:01:36,160 --> 00:01:39,480 Speaker 2: It didn't necessarily know most of the economists in the 38 00:01:39,520 --> 00:01:42,000 Speaker 2: consensus we're thinking that they wouldn't cut because they were 39 00:01:42,040 --> 00:01:44,080 Speaker 2: listening to what was said back in May. So there 40 00:01:44,080 --> 00:01:46,160 Speaker 2: are trade offs with using Ford guidance, and I think 41 00:01:46,200 --> 00:01:48,520 Speaker 2: that's a question that's still yet to be answered that 42 00:01:48,680 --> 00:01:50,880 Speaker 2: I think the main story here, as I say, is 43 00:01:50,920 --> 00:01:53,560 Speaker 2: a good one. Inflation's coming down, interest rates are coming 44 00:01:53,560 --> 00:01:56,320 Speaker 2: down as well, and that means that you know, that's 45 00:01:56,360 --> 00:01:58,480 Speaker 2: going to give a bit more support to the economy. 46 00:01:58,520 --> 00:02:00,600 Speaker 1: And so how low do you think this goes in 47 00:02:00,640 --> 00:02:02,120 Speaker 1: the But I don't know. A couple of the next 48 00:02:02,120 --> 00:02:02,680 Speaker 1: couple of years. 49 00:02:03,600 --> 00:02:05,760 Speaker 2: Well, we now think that, well, we think that the 50 00:02:05,840 --> 00:02:07,520 Speaker 2: RB and Z will probably deliver a couple of more 51 00:02:07,560 --> 00:02:10,239 Speaker 2: cuts because twenty five basis point isn't very much this year. 52 00:02:10,320 --> 00:02:12,480 Speaker 2: So we've got two more cuts this year, and then 53 00:02:12,480 --> 00:02:14,640 Speaker 2: we've got another four penciled in for next year. So 54 00:02:15,120 --> 00:02:17,079 Speaker 2: that would take the cash rate all the way back 55 00:02:17,120 --> 00:02:19,800 Speaker 2: down to somewhere that's sort of closer to neutral, maybe 56 00:02:19,840 --> 00:02:22,239 Speaker 2: a roundabout or a little bit below their neutral setting. 57 00:02:22,280 --> 00:02:24,280 Speaker 2: So we haven't got in mind that we're going all 58 00:02:24,320 --> 00:02:27,359 Speaker 2: the way back down to the levels we were pre pandemic, 59 00:02:27,440 --> 00:02:29,760 Speaker 2: or the levels we were even through the pandemic. The 60 00:02:29,760 --> 00:02:31,680 Speaker 2: world is a different place now where interest rates are 61 00:02:31,680 --> 00:02:33,800 Speaker 2: a bit higher and inflation is a bit stickier. But 62 00:02:33,840 --> 00:02:35,560 Speaker 2: we do think there's a fair bit of relief that's 63 00:02:35,600 --> 00:02:37,480 Speaker 2: going to come through fairly quickly, and that's going to 64 00:02:37,480 --> 00:02:39,919 Speaker 2: happen in New Zealand. But you know, today we got 65 00:02:39,960 --> 00:02:42,760 Speaker 2: reminded again by the RBA in their minutes that the 66 00:02:42,880 --> 00:02:45,240 Speaker 2: RBA is still quite some time away from thinking that 67 00:02:45,280 --> 00:02:47,160 Speaker 2: they can deliver rate cuts here in Australia. 68 00:02:47,240 --> 00:02:49,799 Speaker 1: Yeah, so those minutes that were released showed that they 69 00:02:49,800 --> 00:02:53,120 Speaker 1: had considered right hiking, but they decided instead that the 70 00:02:53,160 --> 00:02:56,760 Speaker 1: best option was just keep it steady and higher for longer. 71 00:02:56,919 --> 00:02:59,200 Speaker 1: Is this then trying to avoid a full on recession? 72 00:03:00,560 --> 00:03:02,160 Speaker 2: Well, I think this has been the plan all the 73 00:03:02,160 --> 00:03:04,839 Speaker 2: way along. They wanted to. They didn't lift interest rates 74 00:03:04,880 --> 00:03:06,880 Speaker 2: quite as much as everyone else. They did less, for 75 00:03:06,919 --> 00:03:08,920 Speaker 2: example than the arby Inzad and the FED and the 76 00:03:08,960 --> 00:03:13,680 Speaker 2: Bank of England. The need that strategy was to bring 77 00:03:13,720 --> 00:03:15,880 Speaker 2: inflation down. Of course they need to bring inflation down 78 00:03:15,880 --> 00:03:19,120 Speaker 2: it was very high, but try to maintain as close 79 00:03:19,160 --> 00:03:21,760 Speaker 2: to full employment as possible along the way, not not 80 00:03:21,880 --> 00:03:25,200 Speaker 2: deliver a hard landing. Well they've gotten both those that 81 00:03:25,280 --> 00:03:27,680 Speaker 2: the economy has slowed, but it's not had a hard landing. 82 00:03:27,720 --> 00:03:30,519 Speaker 2: We haven't had a recession in Australia. And inflation, well 83 00:03:30,520 --> 00:03:33,400 Speaker 2: it's not coming down quite very quickly. It's still taking 84 00:03:33,440 --> 00:03:36,680 Speaker 2: time to fall. So that leaves them without the option 85 00:03:36,800 --> 00:03:38,440 Speaker 2: of being able to cut rates and as you say, 86 00:03:38,480 --> 00:03:41,560 Speaker 2: really quite something that they were talking about possibly lifting 87 00:03:41,640 --> 00:03:45,360 Speaker 2: rates early in August, where of course other central banks 88 00:03:45,640 --> 00:03:47,760 Speaker 2: are busy cutting them at the moment. So look, we've 89 00:03:47,800 --> 00:03:51,640 Speaker 2: held this few all years. You know a bit. You 90 00:03:51,680 --> 00:03:53,880 Speaker 2: know that we don't think the RBA is cutting this year, 91 00:03:53,880 --> 00:03:56,040 Speaker 2: that rate cuts are more proposition to twenty twenty five, 92 00:03:56,080 --> 00:03:57,760 Speaker 2: and a lot of that is to do with the 93 00:03:57,760 --> 00:04:01,080 Speaker 2: strategy that the RBA has taken. They've tightened less slow 94 00:04:01,120 --> 00:04:03,320 Speaker 2: the economy, less inflation's coming down more slowly. 95 00:04:03,960 --> 00:04:05,440 Speaker 1: Good stuff, Paul, It's good to talk to you, and 96 00:04:05,440 --> 00:04:07,160 Speaker 1: we'll talk to you again very shortly. Look after yourself. 97 00:04:07,160 --> 00:04:09,840 Speaker 1: That's Paul bloxsome the ages SPC chief economists in Sydney. 98 00:04:10,440 --> 00:04:13,600 Speaker 2: For more from Hither Duplessy Allen Drive, listen live to 99 00:04:13,720 --> 00:04:16,760 Speaker 2: news talks it'd be from four pm weekdays, or follow 100 00:04:16,760 --> 00:04:18,560 Speaker 2: the podcast on iHeartRadio.