Following the Australian election and re-election of the Liberal-National Coalition the Reserve Bank of Australia will be free to cut interest rates perhaps as soon as next month - which will in turn increase pressure on our Reserve Bank to cut New Zealand rates again, according to Kiwibank economists.
At its last review the RBA held Australia's cash rate at 1.5%, while its counterpart the RBNZ earlier this trimmed the Official Cash Rate here for the first time since November 2016 from 1.75% to 1.5%.
In their weekly First View publication Kiwibank chief economist Jarrod Kerr and senior economist Jeremy Couchman say for markets the election result across the Tasman is "very welcome indeed", with the Australian currency surging in the wake of it.
"For markets, a clear Liberal outcome in the election is far better than a close run with an uncertain outcome.
"We’ll say it again, uncertainty is anathema to markets. And market traders generally prefer politicians of the 'right' side of centre. Consequently, the Aussie dollar opened the week stronger," they say.
They believe the Australian election may have been a factor holding the RBA back from cutting interest rates a few weeks ago.
But with the election out of the way, "there is little holding the RBA back from delivering a cut to the Aussie cash rate as soon as June (or July)".
"The market is now pricing in around an 80% chance that the RBA will cut the cash rate in June. We agree.
"The NZD/AUD currency cross would likely rise in response. As a result, on this side of the Tasman a cut delivered by the RBA is likely to put a little more pressure on the RBNZ to cut interest rates further.
"In our view, with or without the RBA cutting, there is enough reason for the RBNZ to cut the OCR again in August to a new low of 1.25%. And market pricing moved closer to our view last week, with a 50% chance of a cut in August. Again, we agree with the move," Kerr and Couchman said.
6 Comments
Blimey. Kiwibank don’t even want to wait more than a week and half to see if the first cut will entice more people to take on the debt burden, already calling for more cuts. C31 figures on the 25th are going to be an interesting read. I’m looking forward to Mr Hargreaves analysis already.
Yeah, they seem very desperate. The way I see it, debt based monetary systems underpinned by inherent greed and lack of vision, are dead on arrival and like vampires, banks need cheaper and cheaper debt so the can continue to live off the life blood of good natured humans.
Low interest is exactly that .... low interest. Interest is not just about a rate of return, it's also about how people are motivated (or not). So, my suggestion is that one low interest (rate) will lead to another low interest (of the businesses & workers to actually do anything) or similarly, to people of means to actually want or do anything.
Tying two threads together, the RBNZ forecasts a net benefit to GDP, from Kiwibuild . Without Kiwibuild, its GDP forecasts 1-2 years out will already be optimistic. It has already stated that unless GDP gets up to 3 percent, inflation will miss its mandated target. On that basis , if Kiwibuild is cut, so will the OCR, unless of course we can sell more houses to one another .
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