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Australia & New Zealand

RBNZ confirms hiking cycle to be followed by cuts

The RBNZ sounded hawkish when it hiked rates by 50bp today, and we now think rates will rise to 3.5% by the end of this year. But the Bank endorsed our long-held non-consensus view that rate cuts will be required in the years ahead. We think the Bank will begin cutting rates from the second half of next year.

25 May 2022

Australia - Housing downturn could force earlier rate cuts

House prices are starting to fall across Australia earlier than we had anticipated. While we still expect the RBA to hike rates until early-2023, the experience from previous housing downturns points to an earlier end to the current tightening cycle. What’s more, a severe housing downturn could prompt the Bank to cut rates earlier than our current forecast of mid-2024 if inflation drops back again in earnest.

24 May 2022

What does a Labor government mean for Australia?

A Labor government will probably keep fiscal policy looser than the previous Coalition government, putting more pressure on the RBA to hike interest rates. But while a Labor government will make greater efforts to decarbonise the economy, the bulk of mining output is exported so this won’t have a big impact on the mining industry. And we doubt Labor will be able to end the trade war with China.

23 May 2022
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New Zealand - Budget boost will exacerbate inflationary pressures

While the government’s Budget was focused on equipping households to withstand surging living costs, by adding to demand we think it will cause inflation to be higher over the next year. That’s all the more reason for the RBNZ to continue hiking rates aggressively throughout this year.

Wage growth still set to approach 3% by year-end

While wage growth is set to reach 3% by the end of the year, this week’s labour market data didn’t contain any upside surprises that would convince the Reserve Bank of Australia to accelerate its hiking cycle at the upcoming meeting in June. Meanwhile, the opposition Labor party looks on track to win the federal election on Saturday. While Labor has only pledged slightly looser fiscal policy that would easily be offset by likely upward revisions to tax revenue, the party’s historical track record suggests that the budget deficit would shrink less rapidly than under the Coalition government over the coming years.

RBNZ to keep tightening aggressively

The New Zealand economy was running hot even when the Omicron variant was disrupting activity. Now that the peak of the Omicron wave has passed, mobility is rebounding and inflation expectations are rising even further. On that basis, we think the RBNZ will hike rates by another 50 bp at its meeting on 25th May 2022. And we still expect the RBNZ to hike rates at every meeting this year.

Australia Labour Market (Apr. 2022)

While the unemployment rate held steady at a 48-year low in April, the slowdown in employment growth and the sluggishness of wage growth will probably convince the RBA to hike rates by 25bp next month rather than the 40bp some are anticipating.  

Australia Wage Price Index (Q1)

The unchanged pace of quarterly wage growth in Q1 should ensure the RBA won’t accelerate its hiking cycle just yet. But with the labour market still tightening and inflation still rising, we think wage growth will increase further in the quarters ahead. ANZ Drop-in (18th May, 07:00 BST/14:00 SGT): Join economists from our Australia and Markets services shortly after the release of Q1 labour market data for a discussion about the Australian growth, inflation and monetary policy outlook. Register now.

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