Australia & New Zealand
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Australia & New Zealand

Australia & New Zealand Economics Update

RBA probably won’t hike before the May election

Trimmed mean inflation will probably climb above the upper end of the RBA’s 2-3% target band in Q1, which would add to the case for the RBA to start hiking rates in May. However, the RBA hasn’t changed its policy rate in an election month since it started to announce monthly policy decisions in 2008. And with wage growth set to remain below 3% for now, we expect the Bank to wait until August.  

26 January 2022

RBA Watch

Surge in inflation will prompt first rate hike in August

The rapid tightening of the labour market coupled with the acceleration in underlying inflation will prompt the Reserve Bank of Australia to end its asset purchases at its meeting on Tuesday 1st February. And we now expect the Bank to hike rates to 1.25% by end-2023, with the first hike coming in August. Drop-In (08:00 GMT, 26th Jan): Will the RBA follow the Fed this year? Economists from our Australia and Markets services will talk through the likely path of RBA policy making in 2022 and the implications for Australian bond and currency markets. Register here.

25 January 2022

Australia & New Zealand Data Response

Australia Consumer Prices (Q4 2021)

The strong rise in underlying inflation at the end of last year means the RBA is all but certain to end its asset purchase scheme at its meeting next week. And with underlying inflation now above the mid-point of the RBA’s target, the Bank will come under increasing pressure to hike rates this year.  

25 January 2022

Most Recent Alerts

19 hours ago

Australia & New Zealand Economics Update

RBA probably won’t hike before the May election

Key Forecasts

Main Economic & Market Forecasts

%q/q(%y/y) unless stated

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Q4 2022

2021

2022

2023

Australia

GDP

-1.9(3.9)

2.7(3.3)

1.2(2.6)

1.6(3.5)

1.2(6.8)

1.0(5.0)

(4.4)

(4.5)

(3.0)

CPI Inflation (nsa)

(3.0)

(3.2)

(3.4)

(3.3)

(3.1)

(2.7)

(2.8)

(3.1)

(2.6)

Core CPI Inflation1 (nsa)

(2.9)

(2.1)

(2.3)

(2.6)

(2.6)

(2.5)

(2.7)

(2.5)

(2.5)

Unemployment Rate (Ave., %)

4.6

4.7

4.2

4.1

4.0

3.9

5.1

4.0

3.8

RBA Cash Rate, End Period (%)

0.10

0.10

0.10

0.10

0.10

0.10

0.10

0.25

1.00

US$/AUS$, End Period

0.72

0.73

0.71

0.70

0.69

0.68

0.73

0.68

0.68

New Zealand

GDP (production basis)

-3.7(-0.3)

2.2(2.3)

2.2(3.1)

0.7(1.3)

0.6(5.8)

0.3(3.9)

(5.4)

(3.5)

(1.6)

CPI Inflation (nsa)

(4.9)

(5.8)

(5.8)

(4.8)

(3.2)

(2.2)

(3.9)

(4.0)

(1.8)

Core CPI Inflation1 (nsa)

(4.8)

(5.0)

(5.2)

(4.2)

(2.9)

(2.3)

(3.8)

(3.6)

(1.8)

Unemployment Rate (%)

3.4

3.6

3.7

3.8

3.9

4.0

3.9

3.8

4.3

RBNZ Cash Rate, End Period (%)

0.25

0.75

1.00

1.50

2.00

2.00

0.75

2.00

1.50

US$/NZ$, End Period

0.69

0.68

0.67

0.66

0.65

0.64

0.68

0.64

0.62

Aus$/NZ$, End Period

0.95

0.94

0.94

0.94

0.94

0.94

0.94

0.94

0.91

Sources: Bloomberg, Capital Economics; 1Excludes food, household energy and vehicles fuel.


RBA to hike rates this year

Australia & New Zealand Economics Weekly

26 January 2022

Our view

The RBNZ has started to hike rates and the strength in the labour market and soaring inflation mean it will tighten policy more rapidly than the analyst consensus anticipates, though less than what financial markets are pricing in. The RBA is still sounding dovish and will probably disappoint market expectations that the first rate hike will be as soon as next year. While most analysts expect a quick rebound in the Australian dollar next year, we think it will remain weak as commodity prices continue to fall. However, there are early signs that rising living costs will have second-round effects in the form of higher wages. We stick to our view that the RBA will hike rates in early-2023, though the pace of tightening will only be gradual.

Latest Outlook

Australia & New Zealand Economic Outlook

RBNZ will ease even as RBA starts to tighten

Australia’s Omicron outbreak will hold back the recovery this quarter, but there are plenty of reasons why Australia will outperform New Zealand over the next couple of years. As the labour market has tightened more rapidly than we had anticipated, we’ve brought forward our forecast for the first RBA rate hike from February 2023 to November 2022. By contrast, we expect New Zealand’s housing market to come off the boil this year which should prompt the Reserve Bank of New Zealand to end its hiking cycle at 2.0% this year and start cutting interest rates in 2023. Our views on monetary policy are more dovish than what’s priced into financial markets so we expect 10-year government yields to be little changed. What’s more, we expect the New Zealand dollar to weaken against the Australian dollar.

20 January 2022