One more rate cut likely by June: HSBC’s Paul Bloxham

HSBC chief economist Paul Bloxham is sticking with his forecast of one more interest rate cut by June. 

According to Bloxham risks to the global economy are still “skewed to the downside”, with Europe remaining a “potential source of shocks for some time yet” and the recent spike in the oil price a “key risk to the fledgling US recovery”. 

Currently though, Bloxham says the RBA “must be feeling comfortable at the moment”. 

“The economy is in pretty good shape, at least in aggregate. Rates are around neutral, inflation is on target, the labour market is holding up well, so far, and the global situation has stabilised.” 

Bloxham says the Monetary Policy Statement made by RBA governor Glenn Stevens following the announcement reiterates that “should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy”. 

According to Bloxham picking direction for the next move in rates “relies critically on the global outlook and developments in the domestic labour market”. 

The February labour market figures – out on Thursday – will be a key guide to future cash rate decisions, says Bloxham because “history suggests [the RBA] tend to respond to a rising unemployment rate with rate cuts”. 

“On the domestic labour market, we still expect that the weaker parts of the two-speed economy – those in the 'slow lane' – will more than offset the parts in the 'fast lane', in terms of employment growth, such that the overall unemployment rate still rises from here,” says Bloxham. 

“On the flip side, the upside risk to rates stems from the fact that productivity growth has been very weak in recent years. Unless there is a pick-up in productivity, inflation pressures will build as demand seeks to run ahead of a weaker supply-side of the economy.”

 

 

 

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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