Central banks in New Zealand and Korea push with bigger rate hikes, Australia likely to follow

Central banks in New Zealand and Korea have pushed ahead with further super-sized rate hikes as they seek to tame rampant inflation.

Key points:

• Both the RBNZ and the Bank of Korea have raised interest rates by another 50 basis points
• New Zealand’s benchmark interest rate is now 2.5 percent and Korea’s 2.25 percent
• Many economists now expect that many central banks will halt rate hikes by the end of the year

Both have been at the forefront of global central bank moves to dampen inflation, lifting interest rates from pandemic lows in the second half of 2021, months ahead of most other central banks, including the Reserve Bank of Australia (RBA), which was the first to move. enter. Possible.

The Reserve Bank of New Zealand (RBNZ) increased its benchmark overnight cash rate target from 2 to 2.5 percent today, while the Bank of Korea (BoK) also raised interest rates by 50 basis points this morning to 2.25 percent.

It is the third consecutive meeting that New Zealand’s central bank has raised interest rates by half a percentage point, and the move was expected by almost all analysts.

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RBNZ is expected to deliver another hefty rate hike(Kathryn Robinson)

Traders are currently pricing in a roughly 50/50 chance that the RBA will follow its neighbor across the trench with its third straight 50 basis point rate hike in August.

Such a move would bring Australia’s cash rate to 1.85 per cent.

Those not expecting a half-point hike expect the RBA to raise interest rates by 25 basis points to 1.6 percent.

Are interest rates near their peak?

Many economists have now come to the view that the series of aggressive rate hikes in many countries may be nearing its end.

While Marcel Thieliant of Capital Economics expects another 50 basis point rate hike in New Zealand next month, taking the cash rate to 3 percent, he also expects it won’t be much higher than that.

“Our view remains that the ongoing housing downturn will weigh heavily on housing investment and limit household spending, ultimately forcing banks to stop climbing after the policy rate hit 3.5 percent by year-end,” he wrote.

Mr Thieliant’s partner covering Asia, Gareth Leather, sees a similar view for Korea.

“We think inflation will stop rising soon and will start to fall sharply early next year,” he said.

“The recent decline in global commodity prices and a more favorable base effect means fuel and energy price inflation will soon peak.

“We expect headline inflation to start to decline from August.

“Meanwhile, weaker economic growth – caused by the global economic slowdown and the drag from recent policy tightening – should cause underlying price pressures to ease.”

While financial markets are forecasting further tariff hikes for Korea in 2023, Mr Leather thinks the BoK will stop climbing this year.

Several leading Australian economists also expect the RBA to soon slow down its pace of rate hikes.

“A more cautious approach would be appropriate once policy moves to ‘neutral’ in August,” Westpac chief economist Bill Evans wrote in the bank’s latest consumer sentiment report, which noted a sharp drop in confidence.

“We encourage and expect the bank to pause to assess conditions, both domestically and globally, before moving interest rates into the contraction zone later in the day.”

Commonwealth Bank economists are among those who expect the Reserve Bank to slow its rate hike to 25 basis points next month, and they expect cash rates to peak at 2.1 percent by the end of this year.

Posted 57m ago57 minutes agoWed 13 Jul 2022 at 02:35, updated 12m ago12 minutes agoWed 13 Jul 2022 at 03:20

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