Housing downturn raises recession risks

With inflation rising even further than we had anticipated, both the RBNZ and the RBA will slam harder on the brakes than most anticipate. We expect policy rates to peak around 3.5% in both countries. With the ongoing housing downturns set to intensify, consumption growth will soften and dwellings investment will plunge. Accordingly, we expect both central banks to start loosening policy next year and have pencilled 50bp of rate cuts by the RBA and 75bp of rate cuts by the RBNZ.