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Speaker 1: Ever, Duprez the Aussie Reserve Bank has kept the official

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Speaker 1: cash right over there on hold four point three percent.

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Speaker 1: The banks is inflation in Australia is easy, but it

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Speaker 1: is more slow than expected and on the path of

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Speaker 1: interest rates. It's not ruling anything in or out. Paul

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Speaker 1: Bloxham is HSPECIES Chief Economists at Paul. Does that sound

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Speaker 1: to you like they're even considering a hike or is

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Speaker 1: that just jaw boning.

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Speaker 2: Look, I think they're really quite solidly on hold at

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Speaker 2: the moment, but I do think that there's a chance

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Speaker 2: that in the coming months we could see the RBA

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Speaker 2: decide to lift interest rates again. I certainly have been

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Speaker 2: saying that. I think there's a higher chance that the

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Speaker 2: RBA is going to lift its policy rate in the

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Speaker 2: second half of this year than them cutting it. I think,

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Speaker 2: you know, they're highly unlikely to cut it. Their primary

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Speaker 2: concern at the moment is still that inflation is too high,

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Speaker 2: and as they said today, it's falling even more slowly,

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Speaker 2: and so I still think there's a chance. I mean,

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Speaker 2: my central case is they're going to be on hold,

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Speaker 2: and there's a long hold to come from THEBA. But

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Speaker 2: I think we can't rule out the possibility that they

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Speaker 2: might hike sometime in the coming meetings.

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Speaker 3: What do you think would tip them into a hike.

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Speaker 2: It's primarily about inflation. It really is going to be

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Speaker 2: about the inflation numbers. And I think the main thing

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Speaker 2: to look out for will be that second quarter inflation

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Speaker 2: print that we get in late July ahead of their

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Speaker 2: August meeting. That's going to be the main thing to

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Speaker 2: be watching out for, because if they were to get

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Speaker 2: another upside surprise, keeping in mind they had an upside

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Speaker 2: surprise at the last for the last inflation print and

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Speaker 2: they didn't respond because it was only a small upside surprise.

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Speaker 2: But if you start accumulating them getting multiple ones, it

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Speaker 2: might very well convince them that they just have a

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Speaker 2: little bit more they have to do. The thing that

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Speaker 2: might lean against that. Of course, you might not get

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Speaker 2: the upside surprise. That's one possibility. And then the other

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Speaker 2: possibility is that you start to see a bit more

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Speaker 2: weakening in the jobs market and that weak growth persists

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Speaker 2: because we've already got growth that slowed down. The challenge

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Speaker 2: we've got in Australia is growth has slowed, but inflation

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Speaker 2: hasn't come down very fast. Very similar to New Zealand

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Speaker 2: in some ways. It's just that growth hasn't slowed as

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Speaker 2: much here as it had in New Zealand.

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Speaker 3: What is it that's causing your inflation to be so sticky.

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Speaker 2: Well, I think it's primarily a similar story to New Zealand. Actually,

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Speaker 2: it's that the supply side of our economy is still

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Speaker 2: quite disrupted. And it may sound like a stretch, but

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Speaker 2: you know, there's still quite a lot of the disruptive

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Speaker 2: impacts of the pandemic related policies and the pandemic itself

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Speaker 2: flowing through the economy. And you can see that in

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Speaker 2: things like, well, the fact that the jobs market is

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Speaker 2: still not quite matching as well as it should. It's

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Speaker 2: still difficult to find skills, the fact that we've still

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Speaker 2: got we've got a decline in housing construction going on

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Speaker 2: right now, even though we've got very strong demands for housing,

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Speaker 2: And a lot of that is that the housing market,

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Speaker 2: the housing construction industry is quite gummed up. And I

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Speaker 2: think a lot of that is sort of residual effects

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Speaker 2: of the pandemic. That's sharp rising materials costs. It's forced

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Speaker 2: a lot of builders to become insolvent and that's gumming

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Speaker 2: up the system. So I still think that it's a

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Speaker 2: lot to do with weak productivity and a week apply

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Speaker 2: side of our economy, and a quite a bit of

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Speaker 2: that can be attributed to the effects of the pandemic

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Speaker 2: and the pandemic policy response, and it's still flowing through

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Speaker 2: and constraining the economy's ability to deliver, which is leaving

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Speaker 2: you with this higher inflation despite the weakening demand.

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Speaker 3: Paul, give me your take on what happens when we

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Speaker 3: finally get a cut, whether it's a New Zealand or

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Speaker 3: in Australia, Because there is a school of thought that

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Speaker 3: what will happen is it will be such a relief

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Speaker 3: and such a poortend of good things to come that

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Speaker 3: immediately people will become more liberal with their spending.

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Speaker 2: Do you think I think that the cuts, when they

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Speaker 2: do come, will be delivered at a time when the

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Speaker 2: economy is quite weak, and so they will have an

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Speaker 2: effect in terms of lifting things. Yeah. And I think

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Speaker 2: the key question, I guess is going to be about,

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Speaker 2: you know, when the cuts we do get cuts, And

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Speaker 2: our central case for New Zealand is that you are

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Speaker 2: likely to get cuts by the end of the year.

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Speaker 2: That's what we're working with and we've got in mind

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Speaker 2: that come next year you'll get a sequence of cuts

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Speaker 2: in New Zealand. And so if you get a sequence

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Speaker 2: of cuts from the RBNZ, I think you will see

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Speaker 2: some tangible signs that it's going to be supportive of growth.

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Speaker 2: And that's our central case, and that's primarily because the

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Speaker 2: economy is so weak in New Zealand at the moment.

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Speaker 2: In Australia's case, they've kind of chosen a different strategy.

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Speaker 2: They didn't lift rates as much. We've got a very

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Speaker 2: slow decline and inflation going on. We've had a slow

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Speaker 2: down in growth, but we haven't they actually had a contraction.

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Speaker 2: So when they do start easing, I think that's going

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Speaker 2: to be a very They're not going to cut over

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Speaker 2: very much to start with. I think it'll be that

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Speaker 2: you're likely to see them on hold for an extended

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Speaker 2: period and then a couple of cuts in the second

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Speaker 2: half of next year. From the middle of next year

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Speaker 2: is what we've got in mind. So different effects in

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Speaker 2: different places.

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Speaker 1: Hey, Paul, thank you asways really appreciate your sharing some

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Speaker 1: of the expertise with us. As Paul Bloxham hsp's chief economist.

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