Following yesterday’s 100 basis point rate cut by the Reserve Bank of Australia, a statement was released that appeared to indicated that this could be the END of cuts by the RBA.
This surprised me, given that the RBNZ has stated that it is looking at cutting rates. At 3.5% our cash rate is only 25 basis points higher than the Aussie rate – implying that we might cut BELOW our neighbours, which would be very unusual. Why?
The difference in action seems to be the result of two things: the size of the fiscal stimulus in each country (the Aussie one is a lot bigger – as they are not being threatened with a credit downgrade) and a difference in opinion between the two Banks surrounding the outlook for the credit market.
The RBNZ says:
We now expect the impact on New Zealand of these developments to be greater than we did in December, as a result of a more negative outlook for the terms of trade and exports, and tighter credit conditions (emph added)
The RBA says:
Measures to stabilise financial systems have contributed to an improvement in the functioning of credit markets over the past couple of months (emph added everywhere 😛 )
Is this a regional issue – has the credit market improved in Aussie but not NZ? Or does our Bank have a more negative outlook with regards to the credit market. I would say current evidence points in the RBA’s favour – however, what the RBNZ means will become more clear in a month when their forecasts are released.