RBA keeps interest rates on hold, RBNZ likely to follow

06 / 11 / 2018 | Market News
Some of the most important financial news updates are coming from Oceania this week. With Australia and New Zealand being two of the world’s strongest economies, any financial data release regarding them always attracts investors’ attention. Both economies are playing their parts in the global economic activity that has been disrupted in the last few months by the ongoing trade wars between the United States and its trade partners. 

Reserve Bank of Australia (RBA) keeps rates unchanged

On Tuesday November 6th 2018 the Reserve Bank of Australia (RBA) governing board convened to decide on interest rates. The RBA’s executives decided to keep the Bank’s benchmark interest rate unchanged at 1.5%. The last time that the RBA decreased its benchmark interest rate was in August 2016. Since then, the sluggishness in wages and Consumer Price Index (CPI) inflation forced the RBA to shape its monetary policy accordingly.  

Westpac’s analysts stressed the importance of the global economic conditions in the RBA’s rate decision. “The themes that have become familiar in previous statements were repeated in this one: continuing global expansion; China slowing a little; international trade uncertainty;” was noted in their report. However, Westpac’s economists added that the growth and unemployment forecasts were revised and will be confirmed in the statement on monetary policy that will be released on November 9th 2018. 

“The forecast growth rates for 2018 and 2019 have been revised up from 3.25% to 3.5%, while the 2020 forecast is for a slowdown, although the current forecast of 3.0% may now be revised up to 3.25%. With no real change in the wording, there is no clear justification for this upward revision, particularly for the faster expected growth in 2019,” said the Westpac report. 

Strategists at TD Securities wrote in their report published on November 5th 2018 that they expect the RBA to leave its core CPI inflation profile at 1.75% for 2018, at 2.0% for 2019 and 2.25% for 2020. “Consensus expects the cash rate to remain unchanged at 1.5% through to Q4 2019 (was Q2 2019 in August 2018) and implies no change to these statements for quite some time,” was written in the conclusion of their report. 

Reserve Bank of New Zealand (RBNZ) governing board meeting

On Wednesday November 7th 2018 the Reserve Bank of New Zealand (RBNZ) governing board will have its November meeting to decide on borrowing costs. Currently the RBNZ’s benchmark interest rate stands at 1.75%. A Reuters poll published on November 5th 2018 showed that the majority of economists expects the RBNZ to keep rates on hold at its monetary policy meeting. The last time that the RBNZ changed rates was in November 2016. Just two out of eighteen economists polled expect the RBNZ to hike interest rates in the third quarter of 2019 (Q3 2019) while the rest don’t anticipate changes in policy for 2019. 

The Reuters report comments on the country’s economic growth adding that “the RBNZ can take some comfort from surprisingly strong second quarter GDP growth. Yet, while inflation in the third quarter also accelerated closer to central bank’s target mid-point of 2%, some economists described this as a red herring.” Westpac’s economists seem to agree that the RBNZ’s board will keep rates on hold but believe that the accompanying monetary policy statement will more “hawkish” than the August’s 2018 one. 

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