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Australia & New Zealand

New Zealand

RBNZ will hike rates to 4% but cut next year

The RBNZ lifted the overnight cash rate by 50bp to 3% today as everyone had anticipated and signaled that it will deliver another 50bp hike in October. We now expect the Bank to hike rates to a peak of 4% instead of our previous forecast of 3.5%, but we still expect rate cuts next year.

17 August 2022

RBNZ tightening cycle will stop by year-end

Rising interest rates are weighing on the housing market but economic activity is holding up and inflation has continued to accelerate. The upshot is that the Reserve Bank of New Zealand will hike interest rates by another 50bp at the upcoming meeting on 17th August, but we expect smaller 25bp across Q4.

10 August 2022

Labour Market (Q2 2022)

The first rise in New Zealand's unemployment rate since mid-2020 suggests that the RBNZ's hiking cycle is nearing its end. Indeed, we expect the RBNZ to start cutting interest rates next year.

3 August 2022
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Economy to slow more sharply than Treasurer expects

While we expect the economy hold up a bit better than the Treasurer in the near-term, aggressive policy tightening by the Reserve Bank of Australia will exacerbate the ongoing housing downturn. Accordingly, we expect GDP growth to slow more sharply in the coming financial year than the government is anticipating. Meanwhile, the mulled easing of China’s export ban on Australian coal imports won’t provide a big boost to the economy.

Inflation to surge despite falling commodity prices

The recent fall in global food and crude oil prices means that the inflation outlook has become more nuanced. But with coal and wholesale gas prices at record highs, Australians will soon witness the surge in utility bills that is raising the cost of living elsewhere. And with domestic inflationary pressures still building, we expect inflation to climb to 8% by year-end.

RBA to hike rates more sharply than most anticipate

The minutes of the RBA’s July meeting showed that the Bank debated a smaller 25bp rate hike but ended up hiking rates by 50bp. Those minutes also included a discussion of the level of the neutral interest rate, which will come into touching distance before long if the Bank keeps hiking rates aggressively. Nonetheless, we still think there’s a decent chance that the Bank will deliver a hefty 75bp hike at its upcoming meeting in August. For one thing, the unemployment rate has now plunged to 3.5%, a level that the Bank only expected to be reached by the middle of next year. It will probably fall further over coming months. What’s more, the Q2 inflation data, due on 27th July, should show another very strong increase in consumer prices. Either way, we’re increasingly confident in our above-consensus forecast that interest rates will peak at 3.6%. Australia Drop-In (15:00 SGT, 27th July): Join our 20-minute briefing on why we think Australian inflation is heading higher than the consensus expects, how the RBA will have to raise rates by more than most appreciate to tame it, and what it all means for Aussie asset prices. Register now

New Zealand Consumer Prices (Q2 2022)

The stronger-than-expected rise in consumer prices in Q2 adds some upside risks to our forecast that the Reserve Bank of New Zealand will lift rates to 3.5%, but we still think that weaker economic activity will force the Bank to stop tightening before long.

RBA will deliver 75bp rate hike next month

With consumer spending resilient, the labour market tightening far faster than anyone had anticipated and inflation set to surge further in Q2, we now expect the Reserve Bank of Australia to deliver a 75bp rate hike at the upcoming meeting in August. Meanwhile, the Reserve Bank of New Zealand will probably hike by another 50bp next month, but we expect the economic recovery in New Zealand to lose steam before long.

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