Bledisloe’s Interest Rate Cup – ShareCafe
Monetary policy in Australia and New Zealand will move in drastically diametral directions this week as regular meetings of reserve banks in both countries appear poised to deliver very different decisions and statements after the meeting.
The RBA will stand still and the RBNZ will increase its spot rate by at least 0.25%, although the bizarre economist believes that a 0.50% increase cannot be ruled out for the impact it would have on the confidence of home buyers.
The RBA will keep the spot rate stable at 0.1% and maintain the parameters of its bond buying program in its October announcement, i.e. it will continue to buy bonds at a rate of $ 4 billion per week until mid-February.
By comparison, the RBNZ is expected to raise the official policy rate 25 basis points to 0.5% and warn that more hikes are in store, raising the prospect of a hike at the end-November meeting.
The RBNZ wants to quell a spike in house prices that (like Australia’s) is unsustainable. Kiwi’s central bank, however, is trying to curb the rapid rise in prices with the introduction of restrictions designed to control the flow of credit to buyers with low deposits and low incomes.
The RBNZ reportedly tightened monetary policy in August, barring the surprise Covid outbreak, but decided not to increase the cash rate.
Despite the Covid epidemics, the Kiwi economy is further along the recovery curve than Australia is currently.
The RBNZ will join the central banks of Norway, South Korea and Brazil in raising interest rates in recent months.
The Czech National Bank last week raised its key rate from 0.75% to 1.5% in an attempt to calm the economy and in particular rising inflation. It began to hike rates in June by 0.25%.
The US Federal Reserve could raise rates next year, the Bank of England could follow suit, but other central banks in Sweden, Japan and the European Central Bank will not be raising rates anytime soon, although some could tighten slowly by reducing their obligation to buy – which the RBA is currently doing.
Australian economic data from last week showed that there is a bit more underlying strength in the economy than it looks.
The question is whether this will be maintained as a reopening approaches with vaccination rates heading towards 80% double vaxx and can the underlying strength be maintained, or will it be short. puff in 2022?
Without a doubt, the trade account looks much stronger than it was just a month ago – the drop in iron ore prices has been more than offset by soaring coal and LNG prices – all benefiting from China’s 2020 ban on Australian coal exports and heavy loads. postponed attempts to reduce China’s carbon emissions.
India is moving in the same direction with a shortage of coal for its power plant network thanks to soaring import prices and tight state control over domestic coal prices.
August’s 1.7% drop in retail sales was better than market forecast for a 2.5% drop and came amid lockdowns in NSW, Victoria and ACT (where retail sales fell 20% during the month on a small basis).
On Thursday, August data on building permits from the Australian Bureau of Statistics surprised with a sharp increase instead of another weak month, while Reserve Bank credit data for August showed another Large expected increase in lending activity, part of which is again driven by investors.
At the same time, vacancies for the three months ending in August declined but were still well above those of a year earlier, another sign of the underlying health of the labor market.