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RBA to hike aggressively as inflation surges

The surge in inflation would warrant a rate hike at the Reserve Bank of Australia’s upcoming meeting on 3rd May. But we think the Bank will wait until the June meeting, where we now expect the cash rate to rise to 0.50% We expect rates to reach 2% by the end of this year and 2.5% by mid-2023, which would be a bit more aggressive than the Bank’s last two tightening cycles.
Marcel Thieliant Senior Japan, Australia & New Zealand Economist
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The RBNZ lifted the overnight cash rate by 50bp to 3% today as everyone had anticipated and signaled that it will deliver another 50bp hike in October. We now expect the Bank to hike rates to a peak of 4% instead of our previous forecast of 3.5%, but we still expect rate cuts next year.

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Australia & New Zealand Economics Update

Higher migration not enough to cool labour market

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Australia & New Zealand Data Response

Australia Consumer Prices (Q1 2022)

Inflation surged in Q1 and is on track to surpass 6% later this year, exceeding the levels reached around the GST hike in 2000. With trimmed mean inflation already higher than at the start of previous tightening cycles, the Reserve Bank of Australia may opt for a 50bp hike at its June meeting.

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Japan Economics Update

BoJ to widen 10-year yield tolerance band further

With US Treasury yields set to keep rising over the coming year, it will become even more difficult for the Bank of Japan to defend its target for 10-year JGB yields. While we don’t expect the Bank to abandon Yield Curve Control altogether, we think it will widen its tolerance band further, perhaps to ±50bp.

26 April 2022

Japan Economics Weekly

Fresh yen & bond market turmoil, poor growth outlook

The Bank of Japan had to step in yet again to defend its 10-year yield target this week, but it didn’t have to go to the same lengths as in late-March to keep yields in check. With yields nailed to the floor, the yen continued to slide rapidly against the dollar, but we doubt that the Finance Ministry’s jawboning will be followed up by actual intervention. Meanwhile, Japan’s population fell at the fastest pace on record last year. Unfortunately, a shrinking population is now being compounded by falling productivity. The upshot is that the long-term prospects for Japan’s economy are increasingly grim.

22 April 2022
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