The Reserve Bank of New Zealand have defied predictions, holding firm on the cash rate despite the market overwhelmingly forecasting a hike
With Australia’s cash rate tipped to rise again at the Reserve Bank of Australia (RBA) November meeting, Australians face much harsher conditions than their trans-Tasman neighbours in New Zealand.
At its 28 October meeting, the Reserve Bank of New Zealand (RBNZ) held its cash rate at 2.75 per cent, with 95 per cent of markets predicting a hike, catching many by surprise with the 4-3 decision.
New Zealand’s headline inflation in the September quarter was 3.7 per cent, softer than expected but still above the 1 to 3 per cent target range.
RBNZ said annual inflation was tipped to rise to 4.4 per cent in the December quarter, with oil futures prices the primary driving factor.
The committee said that higher fuel and related costs had directly increased inflation and flowed through to domestic prices via higher input costs.
Reserve Bank of New Zealand Governor Anna Breman said that despite holding at the most recent meeting, she would not rule out another rise in the coming meetings.
“We do think that we will see further OCR (official cash rate) increase because of what we are seeing in inflation,” Breman said.
ANZ chief economist Sharon Zollner said headline inflation figures justified a cash rate hike.
“A 25 BP hike today would have been the most prudent course,” Zollner said.
“We continue to believe that it will be necessary to lift the OCR to 3.5 per cent in order to head off risks of inflation becoming persistent, and our best case is that the three hikes will come at the next three meetings.”
In response to the cash rate hold, the Australian dollar climbed to its highest level since early 2013 at $1.2602 NZD.
The move will affect the market across the ditch, with more buyers considering assets in New Zealand, particularly commercial properties.
On a recent podcast, Palise Property director Steve Palise spruiked the idea of Australian investors purchasing commercial properties in New Zealand.
He said investors could benefit from a stronger exchange rate and no stamp duty, stretching their budgets while accessing yields of 6-7.5 per cent.
“It’s actually a very easy process, and there are some good quality deals,” Palise said.
Australian rates likely to rise
With its economy also troubled by stubborn inflation, the Reserve Bank of Australia is tipped to raise the cash rate at its next meeting on Tuesday, November 3.
Recent ABS data showed headline inflation jumping to 4.3 per cent in the 12 months to September, with all four of the nation’s major banks having adjusted their forecasts to a 25-basis-point hike.
A rise in the cash rate to 4.85 per cent would be the highest since November 2008, when the economy was in the midst of the GFC.
Westpac chief economist Luci Ellis said the bank had reaffirmed its forecast for another cash rate hike in November.
“Inflation is above target, and above what the RBA’s August forecasts implied. Some upside risks identified in August have partially materialised,” Ellis said.
“Recent data and communication have consistently pointed to the staff recommending an increase in the cash rate. We expect the majority of the external members to agree, though some members might dissent.”
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