February 19, 2025 • 23 mins
The Reserve Bank of Australia has finally joined the global rate-cut club. Are they ‘one-and-done’ or can we expect more cuts in 2025? In this week’s episode, hear our interview with Deputy Governor Andrew Hauser, who was in the room when the call was made, and join host Rebecca Jones and Bloomberg economy reporter Swati Pandey to break down the decision.
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Speaker 1 (00:02):
So that official news just coming in twenty five basis
point cut. So the official cash rate is now four
point one percent.
Speaker 2 (00:09):
Well, today the Independent Reserve Bank decided to cut the
cash rate to four point one percent. This is very
welcome news for millions of Australians. Now, despite the welcome
cut today, it's a long journey back to the standard
of living Australians had when these interest rate increases began.
Speaker 3 (00:28):
Hello, I'm Rebecca Jones. Welcome to the Bloomberg Australia Podcast.
This week, the Reserve Bank of Australia did exactly what
everyone expected it to and finally cut its key interest
rate by twenty five basis points to four point one percent. Now,
that was the first cut in more than four years.
The RBA, of course, lagging behind its global peers that
(00:50):
have been merrily slashing rates for quite some time. Today
on the show, something a little different. You were going
to hear from someone who was inside the room when
that decision was made, RBA Deputy Governor Andrew Houser. But
before we do that, I'm delighted to welcome back Bloomberg
Economy reporter Swarti Pandy to the podcast to help me
(01:13):
break down Tuesday's decision. Swarty, thank you for joining me,
Thank you Beck.
Speaker 4 (01:18):
Happy to be with you again.
Speaker 3 (01:19):
What a wake at Spain. Mortgage holders can finally breathe
you a tiny sigh of relief. But they really shouldn't
get too far ahead of themselves, at least not according
to RBA Governor Michelle Bullock. SWARTI you were at the
press conference after the decision on Tuesday. What sort of
clues about further rate cuts did Bullock drop?
Speaker 2 (01:42):
That?
Speaker 5 (01:42):
Michelle Bullock was really cautious about any further interest rate cuts.
She repeated and reidurated, and she was trying to drill
down this message really bluntly, that the RBA has got
interest rates, but it is not this art of an
easing cycle. Usually an RBA rate cut is followed by
(02:04):
another easing We have seen back to back cuts or
cuts that come in groups.
Speaker 4 (02:10):
This time it's going to be different.
Speaker 5 (02:12):
And just to encapsulate that, I have some quotes from
her from the press conference that really drills this message down.
So the first one is from her. I want to
be very clear that today's decision does not imply that
further rate cuts along the lines suggested by the markets
are coming.
Speaker 4 (02:33):
So just to.
Speaker 5 (02:34):
Provide some context, markets were predicting two more rate cuts
for twenty twenty five in addition to the one that
has already been delivered, so three rate cuts for the year,
and Michelle Bullock was basically telling people do not expect
even two more rate cuts. So that was a really
strong message. The other one from how was we have
(02:55):
to be careful not to get ahead of ourselves and
we cannot declare tree on inflation just yet. So those
a comment just really shows how cautious they are about inflation,
how cautious they are about the economy, and they are
still not one hundred percent confident that it is time
(03:16):
to start a proper easing cycle, one that we have
seen in New Zealand, in the United States, in Canada
not happening in Australia.
Speaker 3 (03:26):
It's fascinating how quickly it all moves right from three
to one, and the market of course adjusting their expectations
of a cut accordingly. And you know, we were still
we were still blocking the decision on Tuesday, and there
was announcements coming out from all of Australia's largest banks
very very quick to pass on those cuts.
Speaker 4 (03:45):
Swati what sort of data will.
Speaker 3 (03:47):
They be looking at when they make the next decision,
and that is whether or not to cut at the
April first RBA meeting.
Speaker 5 (03:56):
So the RBA is an inflation targeting central bank, but
it has dual mandate, so inflation is not the only
thing that it targets. The other thing that it looks
at is the labor.
Speaker 4 (04:07):
Market employment jobs.
Speaker 5 (04:10):
So apart from inflation, which is going to be the
most important figure that everybody keeps an eye out for,
the RBA will also be looking at where the unemployment
rate is, how employment growth in the economy is tracking,
and where wages growth is. We had wages data on
Wednesday which is pointing to a slowdown in the rate
(04:33):
of growth. However, the RBA's own focast, which was released
on Tuesday, shows that there will be an acceleration and
that there is some weight in that forecast because we
are already seeing signs of unions demanding greater pay increases.
Speaker 4 (04:51):
If you live in Sydney, you.
Speaker 5 (04:53):
Must have experienced some sort of disruption lately in with
trains and that is cause unions are demanding more wage
increases and we are seeing a bit of that in
some other sectors as well. There is a lot of
wage increases that we have seen in public sector, in
government jobs. So that is the type of wage increases
(05:16):
that Michelle Bullock is a bit wary of, especially in
an economy which is not growing very strongly. And Deputy
Governor Andrew Hauser is going to be talking about that
as well, because that is something that definitely was discussed
inside the boardroom.
Speaker 3 (05:37):
On that note, let's hear now from Andrew Hauser, the
Deputy Governor of the Reserve Bank of Australia. Here he
is speaking with Bloomberg's Heidi Stradawatts earlier today.
Speaker 1 (05:48):
Join us now is the RVIA Defuity Governor Andrew Hawser,
and such a rare trait to speak to you, to
speak to anyone from the RBA, So we appreciate your time.
I think what that introduction sort of left out is
the further that we felt this sort of nationwide applause
and cyber relief.
Speaker 6 (06:02):
Do you feel like a bit of a rock star
this week?
Speaker 2 (06:05):
Do you mean in terms of the labor data?
Speaker 6 (06:06):
No, in terms of the first d cut in four years?
Speaker 2 (06:09):
Oh, I see, Look, I mean central bankers are probably
not the people you want to invite to your rave
of your dinner party. To be absolutely honest, we're paid
to worry and we're paid to be serious about the economy,
So I only I wouldn't say there was celebration in
the RBA about this. We did what we always do
and look at the data and try to form a
view about where monetary policy should go.
Speaker 6 (06:29):
What was their consternation, though?
Speaker 1 (06:31):
Do you wonder in that room how hard was it
to get to consensus given that there are still data
points that would support a hold perhaps in a different environment.
Speaker 2 (06:38):
Well, look, it's interesting, isn't it. And I'm sure you're
reporting this. The markets had formed the view that it
was more or less a slam dunk, that this would
be a rate cut, and the debate in the rumors
Governor Michelle Bullock said earlier this week was more balanced
than that. There was, as it always is, an exchange
of views about the case for a hold and the
(06:59):
case for cut, and as you say, there were factors
on both sides. We reached clear consensus on the decision
in the end. But I hope and I think it
would reassure you, and I hope it was short reassurance
markets too that we're not sort of saying, oh wow,
the answers already there. So we follow the market and
we just do what people are expecting. We look at
the economics and we make a decision.
Speaker 1 (07:19):
There's nothing predetermined about this particular trajectory of this easing cycle,
I think for any central bank at the moment. But
it's interesting we heard from the Treasurer saying that inflation
is in the rearview mirror with a lot of the risks,
be they global tariffs and counter tariffs or election use spending.
Speaker 6 (07:34):
Do you think that's going too far?
Speaker 2 (07:37):
Well, I mean the Treasurer can speak for himself. There's
been a great deal of positive news about inflation in Australia.
Just to remind you, and we know this, we adopted
a somewhat different strategy to tackling the inflation spike in
Australia to other countries. We raise interest rays to a
level we thought that were restrictive, but we didn't raise
them to the sorts of levels that our sectral banks
(07:58):
had done, precisely because we wanted to protect the gains
in the labor market. And as I think you've been
talking about earlier labor data out today show the labor
market in Australia has been incredibly strong, but inflation has
also come down as well. What we said in December
is it we would form a view about whether we
become sufficiently confident that inflation would come sustainably back to target,
(08:24):
to the midpoint of the target two and a half
to begin easing. We did reach that position of sufficient confidence,
but this is not a done deal yet. The underlying
rate of inflation is still three point two percent, which
is slightly above the band. The headline rate of inflation
is in the band, and so although we've removed some
of the restrictiveness that we had in policy, there is
(08:45):
still restrictiveness in the system and we still need to
see a bit more good news on inflation coming back
to that midpoint.
Speaker 1 (08:52):
And the job seat was quite nuancew rap because even
though unemployment ticked up, even though we saw more jobs
than expected, full time being added, participate still really high.
The wages data this week showed further slowing. Does that
tell you that some of that robustness might start to
fade in the coming months.
Speaker 2 (09:09):
Which bit of it shows you that it might fade.
Speaker 1 (09:12):
That we're starting to see the signs of perhaps a
little bit more vulnerability in the labor market, and of
course Australia's not the only one that's kind of dealing
with that scenario.
Speaker 2 (09:19):
Quite hard to see bad is in the latest employment data.
They are they remain very strong. I think the debate
about the labor market is a slightly different one, which is,
although we know employment has been growing strongly, inflation has
been coming down and as you say, wage inflation has
been coming down too. So there's a very lively debate
about whether that employment growth leaves us with less capacity
(09:41):
in the labor market or a bit more. If there
is a bit more, then inflation will come down more
quickly than we're predicting, and that'll be good news because
it would mean that we can adjust policy more rapidly.
But we need to see more information on that, I
think before we can be sure.
Speaker 1 (09:55):
How does it change in immigration numbers potentially affect that,
particularly with the labor market, broad of growth in general,
because we are expecting that regardless.
Speaker 6 (10:03):
Of who wins Cissier selection.
Speaker 2 (10:04):
So I tread into issues of migration with some tentativeness
as a central banker. Obviously, Australia for a long periods
of time has had a model of substantial immigration as
part of its growth model and has done very well
out of that. In terms of the inflationary implications for immigration.
Broadly speaking, our viewers that it's a wash, so every
(10:26):
person that comes into that well, in general, people that
come into the economy, they increase the labor supply, which
pushes down on inflation. But they also have to purchase things.
They have to consume things, and they have to spend money,
and that increases demand. And broadly speaking, you can debate
the details, those two effects probably factor out, leaving inflation
(10:46):
roughly where it would be otherwise.
Speaker 1 (10:48):
I do want to get your view on the property market.
I know it's not an RBA topic, but it is
a national obsession.
Speaker 2 (10:55):
Of course, right, I'm a renter, I should say that
probably immediately puts me.
Speaker 6 (10:59):
Whether you're I've got nothing else say here?
Speaker 1 (11:01):
Yeah, But you know, it is an ongoing problem, and
it is something that you know feeds into the affordability
and the cost of living crisis. Is there a balance here?
Is there a policy to balance that you can see?
Speaker 6 (11:13):
Well?
Speaker 2 (11:13):
I think one of the quite encouraging bits of news
in the latest decline in inflation is that some of
those metrics, whether it's a dwelling costs or rents, have
started to come off inflation in those two amounts and
that was one of actually the surprises in the undershoot
of inflation that we and the market both saw in
those numbers. And so some calling there I hesitate to
(11:36):
say that you know where this is going to leave
us in two or three years time. And clearly there
are major structural challenges in the Australian housing market that
I'm not going to wade into. All we can do is,
you know, take as an input our best read of
what's going into the housing.
Speaker 6 (11:51):
Now two or three times, but two or three years
in the future. But let's look forward to April, right.
Speaker 1 (11:56):
If I put it to you that the monthly CPI
data you get, maybe the two readings beforehand show that
first quarter trim me is going to come in under
the forecast from this week, would that trigger remove?
Speaker 2 (12:09):
No single piece of data will ever trigger a news.
We get a lot of inform a cutdoor, a move.
We get a lot of data in every month from surveys,
from hard data from our liaison people that are around
the country talking to talking to businesses and our job
is to put all of that information into a hopper
and form of view about the outlook for inflation. Clearly,
(12:29):
the inflation numbers are important. As you know, there are
challenges with using the monthly data in Australia because the
monthly indicators are not even called inflation numbers are partial
reads on inflation. We only get a full one hundred
percent read on inflation once a quarter. That causes us
to aim off a little bit from the monthly numbers.
But look, I mean, if they come in weak, that
(12:51):
will obviously be important for us. And as I say,
I wouldn't quite say what's not to like here, But
a world in which our forecast for inflation may be
being a little bit above on the basis of the
market curve, if we get news on the downside of that,
that's a cause for celebration.
Speaker 1 (13:07):
Do you envisit a challenge where rates stayed the same
because there is, of course so much caution uncertainty, invation
continues to come down and you get that de facto
financial tightening scenario.
Speaker 6 (13:18):
Is that a worry?
Speaker 2 (13:20):
Well, it's interesting actually, because our forecast, which shows inflation
stabilizing slightly above the midpoint, has got some interest. Point
Number one is that's conditioned on the market curve, which
assumes that there'll be three or four more cuts. But
one of the pieces of information that the board reviewed
before making its decision was an alternative version of that
forecast which looked at what would happen if we held
(13:43):
interest rates constant, which I think is your question, and
under that forecast, and we didn't publish this, but I
can tell you this is what it looked like under
that forecast. Inflation didn't stop at two point seven. It
undershot the midpoint, not by a lot, but by a
little bit. And that factor alone was quite an important
input into the boar's decision. So holding interest rates constant
(14:04):
would have led inflation to undershoot, and that was an
important part of our discussion.
Speaker 3 (14:10):
And when we come back, we'll have more of our
interview with Andrew Hawser, Deputy Governor of the Reserve Bank
of Australia. This is the Bloomberg Australia Podcast. Welcome back
to the Bloomberg Australia Podcast. I'm Rebecca Jones, and today
you're listening to what RBA Deputy Governor Andrew Hauser had
(14:32):
to say in his sit down with Bloomberg News earlier today.
Speaker 6 (14:36):
Where do you see the neutral rate at the moment?
Speaker 1 (14:38):
A no doubt this morning from CBA modeling and coming
out with it being around two point nine percent for
the nomenal neutral.
Speaker 2 (14:46):
Well, there's a chart in the there's a chart in
our reporter at Saintmental Monetary Policy that shows the range
of estimates of the neutral rate and it runs from
something like one to four. Now, three percentage points of
different in such an important macroeconomic variable is pretty useless,
to be honest, it's far far too vague for us
(15:06):
to put a great deal of weight on that. We
show that chart, I think to make two points one
is that it is very uncertain. And if anyone ever
tells you, and I don't think you'll ever get a
senior central banker to tell you, I know what neutral
is going to be and it's two point x or whatever,
it shows how uncertain it is. But what they all
show us well is that we're clearly restrictive. And there
has been a debate about that too. You know, can
(15:27):
you afford to cut interest rates if you don't, if
you're not sure you're clearly restrictive. We are sure we're
clearly restrictive both before the rate cut and now after
it as well, but I would not want to put
a number on it within that range.
Speaker 6 (15:41):
Do you feel that markets investors.
Speaker 1 (15:44):
Are on the same page as what the RBA is
putting out now, Well.
Speaker 2 (15:48):
I'm glad they're well, I know, but they never are right.
So let me clarify what I mean by that. I
spent decades of my life in financial markets and I
very much value them, listening to them, talking to them,
being challenged by them. Because markets, as you know, are
not one view. There are many views coming together to
trade to get to a single outcome, and so we
(16:10):
learn a great deal from speaking with market participants. So
we learn a great deal from market prices. If you
look at the interest rate curve in Australia at the moment,
you will see steal price several further cuts. And all
we were saying in our forecasts was that, on our judgment,
if you put that rate curve into our best guess
about the economy, inflation is probably going to be a
(16:31):
little bit above target. And so we don't have the
confidence that the market does that that number of cuts
will bring inflation sustainably down. To target. But let me
be clear, we could be wrong, and I know it's
sort of a crime for central bankers to say we
could be wrong, but I think we should be doing
it more often. And in this case, if we're wrong
and the labor market shows it has more capacity and
(16:52):
inflation comes through weaker, then policy will respond. So I
don't think I'm not abashed about that point. Clearly, the
market currently thinks that there will be greater capacity in
the market. That's not our central view, but it might
be right, and if it is, we'll learn from it.
Speaker 1 (17:07):
To that point, Governor Bullock says that she's more of
a glass half full person, that you're more of a
glass half empty person.
Speaker 6 (17:12):
So she said that, yes she did, she did quite recently.
Speaker 1 (17:16):
And I guess I put my question to you, as
I guess, you know, perhaps a resident pessimist. If that's
how she's characterizing you, what do you see is the
bigguse risks facing the economy.
Speaker 2 (17:27):
Why she said that, actually because she was given you
may know this by Phil Low when they handed over
a cup that I think was his, which said glass
half full. And I thought it would be rather funny
to get a cup that said glass half empty. She
didn't actually think it was very funny, So I'm not
quite sure about that. But in terms of risks, look,
I mean number one, I'm not going to I'm going
to be boring. I'm going to say it anyway. Our
(17:50):
focus is still rigorously on inflation. There are risks both
in both directions to inflation, and spent most of the
interview talking about that. We're not going to somehow start
worrying about other risks in preference to that. That's our
number one focus. We talked about the uncertainties around the
labor market and the possibility that there is great a
capacity that would be a good risk to have if
it happens. We haven't talked yet, I guess about the
(18:10):
global economy, and perhaps that's where you're going. Obviously, things
are changing, and I'm sure you spend a lot of
time talking about this on your show. Nobody, anyone who
tells you they know how this is all going to
shake down the long run is wrong, right, We're all
learning things are moving very quickly. I think one of
the important points I say is actually that very uncertainty
(18:33):
about trade policy and about outcomes in general globally, not
exclusively in Australia may itself have an effect on activity
in Australia. So if you're a firm or if you're
a household planning to make an expenditure, then in some
way depends on a certain outcome in the global economy,
and you know that who knows what's going to happen
in the next period, you might just wait. Now, waiting
(18:54):
is very sensible for an individual, but it could be
really bad news for the economy. So I think for
me personally, one of the factors in the decision this
week was actually a sense that maybe that pervasive uncertainty
itself may have some short term depressing effect on activity.
If you want to think about how the various initiatives
that are being mooted around tariffs and non tariff trade
(19:15):
policy are going to affect Australia, there's a huge range
of outcomes, really huge. How big are the tariff's going
to be, what are they going to be faced on,
will there be retaliation, will it be in the main
economies that we trade with, or will it not be.
You plug those various uncertainties into a model, you can
get almost any outcome. It's not good news for Australia
if there's a widespread depression in global activity. That's not
(19:39):
what the financial markets currently expect to happen. But Australia
has thrived when the global economy is thrived, and it's
struggle when it hasn't, so we are very reliant on
continued good global activity. The implications for inflation are less clear.
If you normally, if you impair the supply side of
the economy, you'd expect inflation to rise. However, if it
(20:01):
cuts demand, inflation may fall. So although I think it's
pretty clear that you know Tis said they push through
and they have a material effect on global activity, you
will probably reduce activity in Australia, its impact on inflation
is less clear. So you know, everyone is crunching through numbers.
We have a section in our latest report that talks
about various scenarios, but the truth at the moment is
(20:23):
you pay money and you take your choice. We are
waiting to see how this evolves.
Speaker 1 (20:27):
Is it more of a broad global risk view or
is there still specific risk when it comes to China,
Because you know, traditionally Australia's growth has relied so much
on the strength of China. We know that they're moving
away from industrial production from the property market. That's not
going to improve meaningfully anytime soon. Does that have strong
implications or are we well diversified It could do.
Speaker 2 (20:50):
I mean, talking about this with your colleague earlier, I
think if you look at Australia's long history, Australia has
actually been incredibly effective at responding to the changing shape
of demand in the globe economy. You talk about traditionally
our links with China. Of course that's true in recent years,
but if you go back twenty years, thirty years, fifty years,
one hundred years, Australia has actually specialized in a whole
series of different activities and done very well out of
(21:11):
it based on where the demand in the global economy is.
If the demand in the global economy moves on from
seal being sold to China, then Australia will need to
think about adjusting it in that respect. And as I said,
I have some optimism actually this is not glass half empty,
that Australia will respond to that in due course. But look,
we are keeping a very close eye on Chinese activity.
(21:32):
As I know you are two. It's been challenging in
China in recent years with the demand demand growth and
the adjustment in the property sector. One thing I would
say is I think seal production and iron ore exports
therefore from Australia have held up probably surprisingly well. Two
or three years ago you could see all sorts of
people drawing charts with big lines going down. You know,
(21:52):
piece of steel's far behind us. Actually, demand for seal
has held up. And we have people in China who
who are based in the Australian embassy there and go
around and talk to a very wide range of Chinese
businesses and thinkers and academics and policymakers, and China's been
quite clever about diversifying itself in its use of steel
away from the traditional uses and towards you know, I
(22:15):
mean data centers. For example. Let's suppose we all go AI. Well,
you're going to need a great deal more data centers
that still need steel. So the death of steel is
probably in a foretole a little bit too early sometime.
But look, if we have to adjust, we'll have to adjust.
Speaker 3 (22:28):
And thank you for listening to the Bloomberg Australia podcast.
You can catch our full interview with MBA Deputy Governor
Andrew Hauser on Bloomberg dot Com. You've been with me,
Rebecca Jones and Smartypandy Bloomberg Economy Reporter bringing you this
episode from the traditional lands of the Wondery and get
a good people of the call in any or nation.
(22:48):
This episode was produced by Paul Allen and edited by
Chris Burke and Ainsley Chandler. Don't forget to follow and
review our show wherever you get your podcasts end sign
out for Bloomberg's free daily news setter, Australia Briefing. Go
to Bloomberg dot com to subscribe.
So that official news just coming in twenty five basis
point cut. So the official cash rate is now four
point one percent.
Speaker 2 (00:09):
Well, today the Independent Reserve Bank decided to cut the
cash rate to four point one percent. This is very
welcome news for millions of Australians. Now, despite the welcome
cut today, it's a long journey back to the standard
of living Australians had when these interest rate increases began.
Speaker 3 (00:28):
Hello, I'm Rebecca Jones. Welcome to the Bloomberg Australia Podcast.
This week, the Reserve Bank of Australia did exactly what
everyone expected it to and finally cut its key interest
rate by twenty five basis points to four point one percent. Now,
that was the first cut in more than four years.
The RBA, of course, lagging behind its global peers that
(00:50):
have been merrily slashing rates for quite some time. Today
on the show, something a little different. You were going
to hear from someone who was inside the room when
that decision was made, RBA Deputy Governor Andrew Houser. But
before we do that, I'm delighted to welcome back Bloomberg
Economy reporter Swarti Pandy to the podcast to help me
(01:13):
break down Tuesday's decision. Swarty, thank you for joining me,
Thank you Beck.
Speaker 4 (01:18):
Happy to be with you again.
Speaker 3 (01:19):
What a wake at Spain. Mortgage holders can finally breathe
you a tiny sigh of relief. But they really shouldn't
get too far ahead of themselves, at least not according
to RBA Governor Michelle Bullock. SWARTI you were at the
press conference after the decision on Tuesday. What sort of
clues about further rate cuts did Bullock drop?
Speaker 2 (01:42):
That?
Speaker 5 (01:42):
Michelle Bullock was really cautious about any further interest rate cuts.
She repeated and reidurated, and she was trying to drill
down this message really bluntly, that the RBA has got
interest rates, but it is not this art of an
easing cycle. Usually an RBA rate cut is followed by
(02:04):
another easing We have seen back to back cuts or
cuts that come in groups.
Speaker 4 (02:10):
This time it's going to be different.
Speaker 5 (02:12):
And just to encapsulate that, I have some quotes from
her from the press conference that really drills this message down.
So the first one is from her. I want to
be very clear that today's decision does not imply that
further rate cuts along the lines suggested by the markets
are coming.
Speaker 4 (02:33):
So just to.
Speaker 5 (02:34):
Provide some context, markets were predicting two more rate cuts
for twenty twenty five in addition to the one that
has already been delivered, so three rate cuts for the year,
and Michelle Bullock was basically telling people do not expect
even two more rate cuts. So that was a really
strong message. The other one from how was we have
(02:55):
to be careful not to get ahead of ourselves and
we cannot declare tree on inflation just yet. So those
a comment just really shows how cautious they are about inflation,
how cautious they are about the economy, and they are
still not one hundred percent confident that it is time
(03:16):
to start a proper easing cycle, one that we have
seen in New Zealand, in the United States, in Canada
not happening in Australia.
Speaker 3 (03:26):
It's fascinating how quickly it all moves right from three
to one, and the market of course adjusting their expectations
of a cut accordingly. And you know, we were still
we were still blocking the decision on Tuesday, and there
was announcements coming out from all of Australia's largest banks
very very quick to pass on those cuts.
Speaker 4 (03:45):
Swati what sort of data will.
Speaker 3 (03:47):
They be looking at when they make the next decision,
and that is whether or not to cut at the
April first RBA meeting.
Speaker 5 (03:56):
So the RBA is an inflation targeting central bank, but
it has dual mandate, so inflation is not the only
thing that it targets. The other thing that it looks
at is the labor.
Speaker 4 (04:07):
Market employment jobs.
Speaker 5 (04:10):
So apart from inflation, which is going to be the
most important figure that everybody keeps an eye out for,
the RBA will also be looking at where the unemployment
rate is, how employment growth in the economy is tracking,
and where wages growth is. We had wages data on
Wednesday which is pointing to a slowdown in the rate
(04:33):
of growth. However, the RBA's own focast, which was released
on Tuesday, shows that there will be an acceleration and
that there is some weight in that forecast because we
are already seeing signs of unions demanding greater pay increases.
Speaker 4 (04:51):
If you live in Sydney, you.
Speaker 5 (04:53):
Must have experienced some sort of disruption lately in with
trains and that is cause unions are demanding more wage
increases and we are seeing a bit of that in
some other sectors as well. There is a lot of
wage increases that we have seen in public sector, in
government jobs. So that is the type of wage increases
(05:16):
that Michelle Bullock is a bit wary of, especially in
an economy which is not growing very strongly. And Deputy
Governor Andrew Hauser is going to be talking about that
as well, because that is something that definitely was discussed
inside the boardroom.
Speaker 3 (05:37):
On that note, let's hear now from Andrew Hauser, the
Deputy Governor of the Reserve Bank of Australia. Here he
is speaking with Bloomberg's Heidi Stradawatts earlier today.
Speaker 1 (05:48):
Join us now is the RVIA Defuity Governor Andrew Hawser,
and such a rare trait to speak to you, to
speak to anyone from the RBA, So we appreciate your time.
I think what that introduction sort of left out is
the further that we felt this sort of nationwide applause
and cyber relief.
Speaker 6 (06:02):
Do you feel like a bit of a rock star
this week?
Speaker 2 (06:05):
Do you mean in terms of the labor data?
Speaker 6 (06:06):
No, in terms of the first d cut in four years?
Speaker 2 (06:09):
Oh, I see, Look, I mean central bankers are probably
not the people you want to invite to your rave
of your dinner party. To be absolutely honest, we're paid
to worry and we're paid to be serious about the economy,
So I only I wouldn't say there was celebration in
the RBA about this. We did what we always do
and look at the data and try to form a
view about where monetary policy should go.
Speaker 6 (06:29):
What was their consternation, though?
Speaker 1 (06:31):
Do you wonder in that room how hard was it
to get to consensus given that there are still data
points that would support a hold perhaps in a different environment.
Speaker 2 (06:38):
Well, look, it's interesting, isn't it. And I'm sure you're
reporting this. The markets had formed the view that it
was more or less a slam dunk, that this would
be a rate cut, and the debate in the rumors
Governor Michelle Bullock said earlier this week was more balanced
than that. There was, as it always is, an exchange
of views about the case for a hold and the
(06:59):
case for cut, and as you say, there were factors
on both sides. We reached clear consensus on the decision
in the end. But I hope and I think it
would reassure you, and I hope it was short reassurance
markets too that we're not sort of saying, oh wow,
the answers already there. So we follow the market and
we just do what people are expecting. We look at
the economics and we make a decision.
Speaker 1 (07:19):
There's nothing predetermined about this particular trajectory of this easing cycle,
I think for any central bank at the moment. But
it's interesting we heard from the Treasurer saying that inflation
is in the rearview mirror with a lot of the risks,
be they global tariffs and counter tariffs or election use spending.
Speaker 6 (07:34):
Do you think that's going too far?
Speaker 2 (07:37):
Well, I mean the Treasurer can speak for himself. There's
been a great deal of positive news about inflation in Australia.
Just to remind you, and we know this, we adopted
a somewhat different strategy to tackling the inflation spike in
Australia to other countries. We raise interest rays to a
level we thought that were restrictive, but we didn't raise
them to the sorts of levels that our sectral banks
(07:58):
had done, precisely because we wanted to protect the gains
in the labor market. And as I think you've been
talking about earlier labor data out today show the labor
market in Australia has been incredibly strong, but inflation has
also come down as well. What we said in December
is it we would form a view about whether we
become sufficiently confident that inflation would come sustainably back to target,
(08:24):
to the midpoint of the target two and a half
to begin easing. We did reach that position of sufficient confidence,
but this is not a done deal yet. The underlying
rate of inflation is still three point two percent, which
is slightly above the band. The headline rate of inflation
is in the band, and so although we've removed some
of the restrictiveness that we had in policy, there is
(08:45):
still restrictiveness in the system and we still need to
see a bit more good news on inflation coming back
to that midpoint.
Speaker 1 (08:52):
And the job seat was quite nuancew rap because even
though unemployment ticked up, even though we saw more jobs
than expected, full time being added, participate still really high.
The wages data this week showed further slowing. Does that
tell you that some of that robustness might start to
fade in the coming months.
Speaker 2 (09:09):
Which bit of it shows you that it might fade.
Speaker 1 (09:12):
That we're starting to see the signs of perhaps a
little bit more vulnerability in the labor market, and of
course Australia's not the only one that's kind of dealing
with that scenario.
Speaker 2 (09:19):
Quite hard to see bad is in the latest employment data.
They are they remain very strong. I think the debate
about the labor market is a slightly different one, which is,
although we know employment has been growing strongly, inflation has
been coming down and as you say, wage inflation has
been coming down too. So there's a very lively debate
about whether that employment growth leaves us with less capacity
(09:41):
in the labor market or a bit more. If there
is a bit more, then inflation will come down more
quickly than we're predicting, and that'll be good news because
it would mean that we can adjust policy more rapidly.
But we need to see more information on that, I
think before we can be sure.
Speaker 1 (09:55):
How does it change in immigration numbers potentially affect that,
particularly with the labor market, broad of growth in general,
because we are expecting that regardless.
Speaker 6 (10:03):
Of who wins Cissier selection.
Speaker 2 (10:04):
So I tread into issues of migration with some tentativeness
as a central banker. Obviously, Australia for a long periods
of time has had a model of substantial immigration as
part of its growth model and has done very well
out of that. In terms of the inflationary implications for immigration.
Broadly speaking, our viewers that it's a wash, so every
(10:26):
person that comes into that well, in general, people that
come into the economy, they increase the labor supply, which
pushes down on inflation. But they also have to purchase things.
They have to consume things, and they have to spend money,
and that increases demand. And broadly speaking, you can debate
the details, those two effects probably factor out, leaving inflation
(10:46):
roughly where it would be otherwise.
Speaker 1 (10:48):
I do want to get your view on the property market.
I know it's not an RBA topic, but it is
a national obsession.
Speaker 2 (10:55):
Of course, right, I'm a renter, I should say that
probably immediately puts me.
Speaker 6 (10:59):
Whether you're I've got nothing else say here?
Speaker 1 (11:01):
Yeah, But you know, it is an ongoing problem, and
it is something that you know feeds into the affordability
and the cost of living crisis. Is there a balance here?
Is there a policy to balance that you can see?
Speaker 6 (11:13):
Well?
Speaker 2 (11:13):
I think one of the quite encouraging bits of news
in the latest decline in inflation is that some of
those metrics, whether it's a dwelling costs or rents, have
started to come off inflation in those two amounts and
that was one of actually the surprises in the undershoot
of inflation that we and the market both saw in
those numbers. And so some calling there I hesitate to
(11:36):
say that you know where this is going to leave
us in two or three years time. And clearly there
are major structural challenges in the Australian housing market that
I'm not going to wade into. All we can do is,
you know, take as an input our best read of
what's going into the housing.
Speaker 6 (11:51):
Now two or three times, but two or three years
in the future. But let's look forward to April, right.
Speaker 1 (11:56):
If I put it to you that the monthly CPI
data you get, maybe the two readings beforehand show that
first quarter trim me is going to come in under
the forecast from this week, would that trigger remove?
Speaker 2 (12:09):
No single piece of data will ever trigger a news.
We get a lot of inform a cutdoor, a move.
We get a lot of data in every month from surveys,
from hard data from our liaison people that are around
the country talking to talking to businesses and our job
is to put all of that information into a hopper
and form of view about the outlook for inflation. Clearly,
(12:29):
the inflation numbers are important. As you know, there are
challenges with using the monthly data in Australia because the
monthly indicators are not even called inflation numbers are partial
reads on inflation. We only get a full one hundred
percent read on inflation once a quarter. That causes us
to aim off a little bit from the monthly numbers.
But look, I mean, if they come in weak, that
(12:51):
will obviously be important for us. And as I say,
I wouldn't quite say what's not to like here, But
a world in which our forecast for inflation may be
being a little bit above on the basis of the
market curve, if we get news on the downside of that,
that's a cause for celebration.
Speaker 1 (13:07):
Do you envisit a challenge where rates stayed the same
because there is, of course so much caution uncertainty, invation
continues to come down and you get that de facto
financial tightening scenario.
Speaker 6 (13:18):
Is that a worry?
Speaker 2 (13:20):
Well, it's interesting actually, because our forecast, which shows inflation
stabilizing slightly above the midpoint, has got some interest. Point
Number one is that's conditioned on the market curve, which
assumes that there'll be three or four more cuts. But
one of the pieces of information that the board reviewed
before making its decision was an alternative version of that
forecast which looked at what would happen if we held
(13:43):
interest rates constant, which I think is your question, and
under that forecast, and we didn't publish this, but I
can tell you this is what it looked like under
that forecast. Inflation didn't stop at two point seven. It
undershot the midpoint, not by a lot, but by a
little bit. And that factor alone was quite an important
input into the boar's decision. So holding interest rates constant
(14:04):
would have led inflation to undershoot, and that was an
important part of our discussion.
Speaker 3 (14:10):
And when we come back, we'll have more of our
interview with Andrew Hawser, Deputy Governor of the Reserve Bank
of Australia. This is the Bloomberg Australia Podcast. Welcome back
to the Bloomberg Australia Podcast. I'm Rebecca Jones, and today
you're listening to what RBA Deputy Governor Andrew Hauser had
(14:32):
to say in his sit down with Bloomberg News earlier today.
Speaker 6 (14:36):
Where do you see the neutral rate at the moment?
Speaker 1 (14:38):
A no doubt this morning from CBA modeling and coming
out with it being around two point nine percent for
the nomenal neutral.
Speaker 2 (14:46):
Well, there's a chart in the there's a chart in
our reporter at Saintmental Monetary Policy that shows the range
of estimates of the neutral rate and it runs from
something like one to four. Now, three percentage points of
different in such an important macroeconomic variable is pretty useless,
to be honest, it's far far too vague for us
(15:06):
to put a great deal of weight on that. We
show that chart, I think to make two points one
is that it is very uncertain. And if anyone ever
tells you, and I don't think you'll ever get a
senior central banker to tell you, I know what neutral
is going to be and it's two point x or whatever,
it shows how uncertain it is. But what they all
show us well is that we're clearly restrictive. And there
has been a debate about that too. You know, can
(15:27):
you afford to cut interest rates if you don't, if
you're not sure you're clearly restrictive. We are sure we're
clearly restrictive both before the rate cut and now after
it as well, but I would not want to put
a number on it within that range.
Speaker 6 (15:41):
Do you feel that markets investors.
Speaker 1 (15:44):
Are on the same page as what the RBA is
putting out now, Well.
Speaker 2 (15:48):
I'm glad they're well, I know, but they never are right.
So let me clarify what I mean by that. I
spent decades of my life in financial markets and I
very much value them, listening to them, talking to them,
being challenged by them. Because markets, as you know, are
not one view. There are many views coming together to
trade to get to a single outcome, and so we
(16:10):
learn a great deal from speaking with market participants. So
we learn a great deal from market prices. If you
look at the interest rate curve in Australia at the moment,
you will see steal price several further cuts. And all
we were saying in our forecasts was that, on our judgment,
if you put that rate curve into our best guess
about the economy, inflation is probably going to be a
(16:31):
little bit above target. And so we don't have the
confidence that the market does that that number of cuts
will bring inflation sustainably down. To target. But let me
be clear, we could be wrong, and I know it's
sort of a crime for central bankers to say we
could be wrong, but I think we should be doing
it more often. And in this case, if we're wrong
and the labor market shows it has more capacity and
(16:52):
inflation comes through weaker, then policy will respond. So I
don't think I'm not abashed about that point. Clearly, the
market currently thinks that there will be greater capacity in
the market. That's not our central view, but it might
be right, and if it is, we'll learn from it.
Speaker 1 (17:07):
To that point, Governor Bullock says that she's more of
a glass half full person, that you're more of a
glass half empty person.
Speaker 6 (17:12):
So she said that, yes she did, she did quite recently.
Speaker 1 (17:16):
And I guess I put my question to you, as
I guess, you know, perhaps a resident pessimist. If that's
how she's characterizing you, what do you see is the
bigguse risks facing the economy.
Speaker 2 (17:27):
Why she said that, actually because she was given you
may know this by Phil Low when they handed over
a cup that I think was his, which said glass
half full. And I thought it would be rather funny
to get a cup that said glass half empty. She
didn't actually think it was very funny, So I'm not
quite sure about that. But in terms of risks, look,
I mean number one, I'm not going to I'm going
to be boring. I'm going to say it anyway. Our
(17:50):
focus is still rigorously on inflation. There are risks both
in both directions to inflation, and spent most of the
interview talking about that. We're not going to somehow start
worrying about other risks in preference to that. That's our
number one focus. We talked about the uncertainties around the
labor market and the possibility that there is great a
capacity that would be a good risk to have if
it happens. We haven't talked yet, I guess about the
(18:10):
global economy, and perhaps that's where you're going. Obviously, things
are changing, and I'm sure you spend a lot of
time talking about this on your show. Nobody, anyone who
tells you they know how this is all going to
shake down the long run is wrong, right, We're all
learning things are moving very quickly. I think one of
the important points I say is actually that very uncertainty
(18:33):
about trade policy and about outcomes in general globally, not
exclusively in Australia may itself have an effect on activity
in Australia. So if you're a firm or if you're
a household planning to make an expenditure, then in some
way depends on a certain outcome in the global economy,
and you know that who knows what's going to happen
in the next period, you might just wait. Now, waiting
(18:54):
is very sensible for an individual, but it could be
really bad news for the economy. So I think for
me personally, one of the factors in the decision this
week was actually a sense that maybe that pervasive uncertainty
itself may have some short term depressing effect on activity.
If you want to think about how the various initiatives
that are being mooted around tariffs and non tariff trade
(19:15):
policy are going to affect Australia, there's a huge range
of outcomes, really huge. How big are the tariff's going
to be, what are they going to be faced on,
will there be retaliation, will it be in the main
economies that we trade with, or will it not be.
You plug those various uncertainties into a model, you can
get almost any outcome. It's not good news for Australia
if there's a widespread depression in global activity. That's not
(19:39):
what the financial markets currently expect to happen. But Australia
has thrived when the global economy is thrived, and it's
struggle when it hasn't, so we are very reliant on
continued good global activity. The implications for inflation are less clear.
If you normally, if you impair the supply side of
the economy, you'd expect inflation to rise. However, if it
(20:01):
cuts demand, inflation may fall. So although I think it's
pretty clear that you know Tis said they push through
and they have a material effect on global activity, you
will probably reduce activity in Australia, its impact on inflation
is less clear. So you know, everyone is crunching through numbers.
We have a section in our latest report that talks
about various scenarios, but the truth at the moment is
(20:23):
you pay money and you take your choice. We are
waiting to see how this evolves.
Speaker 1 (20:27):
Is it more of a broad global risk view or
is there still specific risk when it comes to China,
Because you know, traditionally Australia's growth has relied so much
on the strength of China. We know that they're moving
away from industrial production from the property market. That's not
going to improve meaningfully anytime soon. Does that have strong
implications or are we well diversified It could do.
Speaker 2 (20:50):
I mean, talking about this with your colleague earlier, I
think if you look at Australia's long history, Australia has
actually been incredibly effective at responding to the changing shape
of demand in the globe economy. You talk about traditionally
our links with China. Of course that's true in recent years,
but if you go back twenty years, thirty years, fifty years,
one hundred years, Australia has actually specialized in a whole
series of different activities and done very well out of
(21:11):
it based on where the demand in the global economy is.
If the demand in the global economy moves on from
seal being sold to China, then Australia will need to
think about adjusting it in that respect. And as I said,
I have some optimism actually this is not glass half empty,
that Australia will respond to that in due course. But look,
we are keeping a very close eye on Chinese activity.
(21:32):
As I know you are two. It's been challenging in
China in recent years with the demand demand growth and
the adjustment in the property sector. One thing I would
say is I think seal production and iron ore exports
therefore from Australia have held up probably surprisingly well. Two
or three years ago you could see all sorts of
people drawing charts with big lines going down. You know,
(21:52):
piece of steel's far behind us. Actually, demand for seal
has held up. And we have people in China who
who are based in the Australian embassy there and go
around and talk to a very wide range of Chinese
businesses and thinkers and academics and policymakers, and China's been
quite clever about diversifying itself in its use of steel
away from the traditional uses and towards you know, I
(22:15):
mean data centers. For example. Let's suppose we all go AI. Well,
you're going to need a great deal more data centers
that still need steel. So the death of steel is
probably in a foretole a little bit too early sometime.
But look, if we have to adjust, we'll have to adjust.
Speaker 3 (22:28):
And thank you for listening to the Bloomberg Australia podcast.
You can catch our full interview with MBA Deputy Governor
Andrew Hauser on Bloomberg dot Com. You've been with me,
Rebecca Jones and Smartypandy Bloomberg Economy Reporter bringing you this
episode from the traditional lands of the Wondery and get
a good people of the call in any or nation.
(22:48):
This episode was produced by Paul Allen and edited by
Chris Burke and Ainsley Chandler. Don't forget to follow and
review our show wherever you get your podcasts end sign
out for Bloomberg's free daily news setter, Australia Briefing. Go
to Bloomberg dot com to subscribe.
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