FYI | Oct 25 2007
By Chris Shaw
Yesterday’s CPI data make a rate hike in Australia next month almost a certainty but the move is unlikely to be matched in coming months by the Reserve Bank of New Zealand (RBNZ), which yesterday left its cash rate unchanged at 8.25%.
Economist are not surprised by the decision, Macquarie and CommSec suggesting while inflationary pressures remain thanks to a tight labour market and rising commodity prices this is being offset by signs of a weaker domestic housing market.
Given these offsetting factors TD Securities global strategist Stephen Koukoulas expects the central bank’s neutral to slightly hawkish stance will remain in place for another six months as conditions should ensure inflation remains within its target band.
The next move in rates when it comes is likely to be down, Koukoulas expecting a 0.25% cut in the second quarter of 2008. The one wild card in such a view is potential for a loosening of fiscal policy via tax cuts in the 2008 Federal Budget, ANZ Bank New Zealand interest rate strategist Khoon Goh suggesting comments by the RBNZ in its latest monthly statement are a warning shot to the government over the implications of making such a move.
This is because any move to lower taxes would likely spark additional inflationary pressures, which leads Macquarie to agree with the TD Securities view while rates are likely to stay on hold in coming months the RBNZ is presently more disposed towards raising rather than cutting rates.
