The Reserve Bank of Australia (RBA) is “highly likely” to cut the cash rate by 25 basis points this week, according to HSBC chief economist Paul Bloxham. However, Bloxham cautions that the central bank will likely remain cautious about further rate cuts, citing Australia’s “very weak” productivity growth as a key concern. Bloxham noted that core inflation continues to fall and the RBA had signalled that the July pause was about ‘timing not direction,’ which supports the likelihood of a cut this week.
Bloxham anticipates that the RBA’s August statement will focus on productivity in advance of the government’s economic reform roundtable. Weak productivity has long been a core element of HSBC’s view that the easing cycle will be gradual and shallow, with Australia’s potential growth rate closer to 1.75-2 per cent – well below Treasury and RBA assumptions.
According to Bloxham, genuine reform could boost productivity and living standards, as well as help deliver disinflation. However, he warns that the political mandate for large-scale change remains uncertain following the election.
“For the RBA, this all matters a great deal,” he said. “If potential growth is lower, inflation will tend to be higher for any given rate of growth. Further cuts will depend on clear evidence of disinflation – or, even better, a reform agenda that lifts productivity.” HSBC is one of the world’s largest banking and financial services organizations. The company serves millions of customers through its global businesses.
