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Speaker 1: Now the RBA Board said inflation in underlying terms remains

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Speaker 1: too high. The latest projection show that it will be

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Speaker 1: sometime yet before inflation is sustainably in the target range.

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Speaker 1: And Paul Bloxham's HSBC's chief economist with us to talk

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Speaker 1: us through it. Hey, Paul good A, Now they thought

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Speaker 1: about hiking today. Why didn't they hike?

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Speaker 2: Well, this is it. They did think about it, which

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Speaker 2: is quite something when you think about it, because across

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Speaker 2: the rest of the world, of course we're watching central

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Speaker 2: banks cutting interest rates at the moment. But yes, as

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Speaker 2: you say, they left their policy right on hold today

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Speaker 2: and the governor noted that they did consider lifting them,

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Speaker 2: but they decided to leave them on hold. Why did

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Speaker 2: they leave them on hole? Because well, they got an

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Speaker 2: inflation number last week that was just weak enough, just

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Speaker 2: weak enough to keep them from lifting interest rates. It

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Speaker 2: shows that underlying inflation the thing they focus on the most.

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Speaker 2: The trim mean did edge slightly lower in the second

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Speaker 2: quarter relative to the first quarter, but it's still running

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Speaker 2: at three point nine percent and the RBA targets two

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Speaker 2: and a half, so there's still a long way above

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Speaker 2: where they need to be. So it was just enough

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Speaker 2: to get them to remain on hold and not lift

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Speaker 2: interest rates, but certainly not enough for them to consider

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Speaker 2: cutting interest rates yet. And that was the big thing

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Speaker 2: that the governor went through at the press conference. She

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Speaker 2: noted that, you know, a near term interest rate cut

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Speaker 2: is just not on the cards at the moment.

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Speaker 1: Yeah, I mean increasingly. I remember it was like February

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Speaker 1: March this year, so five or six months ago, and

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Speaker 1: you were saying absolutely no cuts this year, and increasingly

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Speaker 1: you'll been proven rights.

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Speaker 2: Right, Ah, I think that sounds about right, That sounds good. Yes. No,

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Speaker 2: we've had a view since the big tail end of

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Speaker 2: last year, since the end of twenty twenty three, that

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Speaker 2: the RBA wasn't going to be cutting interest rates in

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Speaker 2: twenty twenty four, that the pathway that they'd chosen, and

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Speaker 2: this is really it quite explicitly chosen. They had lifted

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Speaker 2: interest rates by less than everyone else. And we know

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Speaker 2: that they lifted interest rates by four hundred and twenty

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Speaker 2: five basis points, whereas, for example, the RB and Z

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Speaker 2: went five twenty five and so did the US Federal Reserve.

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Speaker 2: So they lifted interest rates by less. They started a

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Speaker 2: bit later than everyone else. They didn't start till May

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Speaker 2: of twenty twenty two and so, and they did this

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Speaker 2: on purpose, did this to try to keep the economy

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Speaker 2: as close to full employment as possible. They wanted to

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Speaker 2: keep supporting it, didn't want growth to slow too much.

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Speaker 2: They wanted to slow, but they didn't want to tip

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Speaker 2: into a recession, accepting that in doing that it would

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Speaker 2: take longer for inflation to come down. And so the

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Speaker 2: explicit pathway they've chosen is one where they thought that

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Speaker 2: inflation would take longer to come down, and they traded

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Speaker 2: it off against staying close to full employment. So with

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Speaker 2: all of that in mind, inflation has come down more slowly,

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Speaker 2: it turns out, And so the RBA isn't able to

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Speaker 2: cut yet, and so rate cuts we don't think are

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Speaker 2: going to happen until next year. That's that's our that's

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Speaker 2: been our central case.

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Speaker 1: So over in New Zealand, there is increasing pressure from

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Speaker 1: a couple of banks on our Reserve Bank to actually

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Speaker 1: cut next week because what their argument is is that

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Speaker 1: it takes about eighteen months for it to flow through

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Speaker 1: to the economy, may as well get started. Now, what

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Speaker 1: do you think, I.

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Speaker 2: Think it's very very much a live decision. What happens

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Speaker 2: with the rbn Z. I think the RBNZ took a

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Speaker 2: very different approach to what I've just described that the

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Speaker 2: RBA did. The rbns that lifted into rights earlier, they

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Speaker 2: lifted them by more. New Zealand economy has tipped into

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Speaker 2: a downturn. You've had two in the past six quarters.

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Speaker 2: You've had four quarters where GDP was actually falling. The

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Speaker 2: labor markets starting to loosen up as well. I think

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Speaker 2: the case is getting stronger for the rbn Z to

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Speaker 2: be able to cut interest rates fairly soon. Actually, the

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Speaker 2: critical thing that's really going to be important here, I

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Speaker 2: think is tomorrow morning we get some employment numbers, and

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Speaker 2: those employment numbers will be one of the key factors.

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Speaker 2: I think that goes into working out whether actually the

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Speaker 2: RBNZ is cutting rights a little later this year or

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Speaker 2: maybe even ass tomorrow. That will be critical for the story.

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Speaker 2: So I think we're getting very close to an rb

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Speaker 2: and Z cut coming through fairly soon. Yay.

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Speaker 1: How good is that? Paul, Thank you very much, really

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Speaker 1: appreciate it. Talks to you in a couple of weeks.

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Speaker 1: It's Paul Bloxham, HSBC's chief economist. For more from hither,

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Speaker 1: Duplessy Allen Drive. Listen live to News Talk zi'd Be

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Speaker 1: from four pm weekdays, or follow the podcast on iHeartRadio