Reserve Bank of Australia set to hike interest rates - are New Zealanders also in for some hurt?

  • 02/07/2024

New Zealand's Reserve Bank will likely leave its official cash rate (OCR) unchanged for a ninth consecutive meeting next week, economists say.  

That's despite fears of another hike in Australia after inflation across the Tasman rose to 4 percent from 3.6 percent this week.  

"Australia's been in a holding pattern... for a while like most other central banks," independent economist Cameron Bagrie told AM on Tuesday. "And, for most of the 12 months, they've seen the trend that most other central banks have seen... inflation's been coming down slow and steadily.  

"They got a bit of a nasty surprise in the last couple of months because the trend has turned from going down - the trend has started to move up."  

But with New Zealand emerging from a double-dip recession after the Reserve Bank (RBNZ) added 525 basis points to the OCR between 2021 and 2023, Most banks expected our baseline interest rate to remain unchanged at 5.5 percent next Wednesday.  

ASB chief economist Nick Tuffley explained inflationary pressures were starting to normalise.  

"Again, if inflation pressures keep showing signs of retreat, the RBNZ will get more confidence that inflation is well and truly on the path to being contained," said Tuffley in ASB's Economic Weekly report. "The RBNZ will want to see the Q2 CPI (consumer price index), out on the 18th of July, before any noticeable change in its take on current inflation pressures."

Nick Tuffley.
Nick Tuffley. Photo credit: AM

ASB expected the first OCR cut in March - later than market expectations of November.  

Westpac also wasn't expecting cuts this year.  

The RBNZ's own forecasts showed the first OCR reduction coming in the second half of 2025.  

"Members of the committee agreed that monetary policy needs to remain restrictive to ensure inflation returns to target within the forecast timeframe."

The RBNZ's monetary policy committee in May also discussed New Zealand's inflation outlook.

According to the May monetary policy statement, the committee "agreed that risks to tradable inflation were balanced but noted that price changes may continue to be volatile".

"A further decline in capacity pressure is expected, supporting a continued decline in inflation."

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