HSBC’s chief economist, Paul Bloxham expects the Reserve Bank to raise rates on Tuesday afternoon and again in November, with house prices falling 13 per cent nationally before it is done. He calls it “the downturn we have to have”.
The Reserve Bank hands down its decision at 2.30pm today. A rise to 4.60per cent is close to fully priced and all four major banks forecast it. HSBC chief economist Paul Bloxham expects the Reserve Bank to go up not only today but again on Cup Day in November. Speaking on Monday night’s Switzer Show:
“I think we’re going to see the RBA lift interest rates twice more,” he told host Peter Switzer. “I think they’re going to be back to back. I think they’re going to lift rates this week and then again in November.”
A rise this afternoon would be the fourth of 2026, after moves in February, March and May.
Bloxham’s case is that the Reserve Bank has run out of room to be patient.
“We’ve had a long period of inflation above target, and I think they have to prioritise getting it down, even if that means the economy weakens quite a bit more yet.”
HSBC’s man on the numbers has the economy stalling around the turn of the year.
‘The downturn we have to have’
Bloxham cribbed Keating in saying that the economy’s speed limit has dropped so far that there is no way to bring inflation down except by slowing the part of it that interest rates reach.
“Productivity is very, very poor. It’s not growing much at all. And so you don’t have any real options here but to slow the economy down to get inflation down.”
Labour productivity fell 0.2per cent over the past year, he said, which means the same hours worked now produce less than they did twelve months ago. Over the past decade it has averaged 0.3per cent a year, against 1.3per cent a year in the decade before that.
He blames a tax system leaning on inefficient taxes, a tightening regulatory system, a more complicated industrial relations system and weak competition, plus a shift in growth towards public spending on the care economy, where productivity is lower.
Meanwhile public demand is still expanding and the data centre build-out is running. Neither slows when rates rise.
“To slow the economy down overall, you’ve got to squeeze the other bit.”
The other bit is the consumer and housing.
How far will property prices go down as a result?
HSBC’s central case has house prices falling 13per cent peak to trough nationally, and 17per cent in Sydney.
“That makes us one of the weaker ones on the street,” Bloxham said.
He set out four separate channels through which that reaches the rest of the economy. Households feel less wealthy and spend less. Turnover falls, because people will not sell into a falling market, and that takes furniture and car sales down with it. Lower turnover cuts stamp duty revenue, leaving state governments with less to spend. And residential construction weakens, because builders face rising costs into falling prices.
“All of those things are weakening growth.”
Asked whether a worse-than-expected hit to household wealth could force a cut by March, Bloxham put it much further out.
“I’m not sure it would be that early. I mean, we’ve got in mind the second half of next year. But a lot has to happen for that to be the case.”
He also argues rates are not going back to where they were. The energy transition, AI infrastructure, defence spending and ageing populations are all drawing on the same pool of savings, and none of them stop soon.
There is a twist in that for anyone counting on AI to fix the productivity problem. If it works, Bloxham says, it raises the economy’s trend growth rate, and that means higher interest rates rather than lower ones.
The monthly CPI indicator lands on Wednesday, one day after the RBA’s upcoming decision. But Bloxham is looking beyond it, saying it is not the print that matters.
“It’s just going to be one monthly print. And so what we really, really need to see is that quarterly print in late October.”
He expects that one to surprise on the upside, which is what would deliver the November rise.
The decision comes at 2.30pm.
This article does not take into account the investment objectives, financial situation or particular needs of any individual. It does not constitute formal advice. Past performance is not a reliable indicator of future performance.
