Interesting question, who you believe more the markets, or Central Bankers. Of course those in Central Bank land, will claim data dependence, and moving targets, and as RBA Deputy Governor Andrew Hauser warned recently it’s a risk to listen to “false prophets” on interest rates; and yet after several false dawns, New Zealand’s central bank cut interest rates, embarking on an easing cycle much sooner than previously indicated as The Reserve Bank’s Monetary Policy Committee lowered the Official Cash Rate by a quarter percentage point to 5.25% Wednesday in Wellington.
The RBNZ’s pivot to easing is a rapid change of tune after it said in May it considered raising rates and wouldn’t cut them until the second half of 2025. The bank’s concerns over sticky domestic inflation are being alleviated as the economy teeters on the brink of its third recession in less than two years and unemployment rises. The RBNZ’s new forecasts show the OCR falling further in the fourth quarter and by about 100 basis points by the middle of next year.
So will the RBNZ’s move influence Australian interest rates. Probably not because inflation in Australia is way worse, and Government spending and support significantly higher. RBA governor Michele Bullock last week ruled out the prospect of rate cuts this year. But the RBA’s significant lag in monetary policy will catch up to the Australian economy as it has done in New Zealand.
Generally, I think Australia will see rates higher for longer because of poor Government policy, as I discussed in yesterdays live show with Leith van Onselen. But the rate trend will be lower ahead, but not back to close to zero, which was in its own right a policy error and helped to fire up inflation in the first place. At least Kiwi’s can breath a little easier, though you can probably thank lower migration for that – Australia please note!
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