The resignation of New Zealand’s Prime Minister opens the door for the opposition to return to power, who have signalled looser policy at a time when government spending is already around record highs relative to GDP. That would be unhelpful in taming inflationary pressures which are proving very persistent as household income growth is outpacing increases in consumer prices. Accordingly, we’re sticking to our forecast that the Reserve Bank of New Zealand will hike interest rates to a peak of 5.5%.
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