The Gulf Time Newspaper One of the finest business newspapers in the UAE brought to you by our professional writers and editors.
Bloomberg
Australia is set to raise interest rates as it closes in on the end of its tightening cycle, while nearby New Zealand just delivered a record hike and is poised to move higher, underscoring different central bank outlooks at year’s end.
All-but one economist sees the Reserve Bank of Australia (RBA) hiking by a quarter-percentage point to 3.1%, with the sole exception forecasting a 15 basis-point move. Some economists expect the RBA to pause in 2023, while others see a couple more hikes, reflecting its aim to cool inflation without slowing the economy too much.
That contrasts with New Zealand, which has boosted rates by 4 percentage points and sees more to come, and the Federal Reserve which has hiked by 3.75 points since March and is also expected to go further.
Both are willing to risk recession — New Zealand forecasts one — as they try to crush inflation.
“The differences reflect some economic divergence and different reaction functions,†said Paul Bloxham, chief economist for Australia and New Zealand at HSBC Plc and a former RBA official.
“The inflation problem in New Zealand appears to be more embedded. The cycle in the housing market has also been more extreme in New Zealand.â€
New Zealand warned when it delivered a 75 basis-point hike that inflation expectations were beginning to shift higher. Its central bank now sees the key rate climbing to 5.5% in 2023 from the current 4.25%.
Australia, by contrast, has seen medium-term inflation expectations remain anchored. While it’s partly achieved this through what would be its sharpest annual policy tightening since 1989, a quarter-point hike would still only bring its cumulative increases since May to 3 percentage points.
Another important point of difference is that Australia is not seeing the same wage pressures that New Zealand and the US are experiencing.
New Zealand’s labour cost index has remained above 3% since the beginning of this year while the Australian measure only broke out of the 2% range last quarter.