Posts Tagged ‘RBA’
Reserve Bank of Australia Governor Glenn Stevens yesterday raised the Benchmark Rate (the equivalent to New Zealand’s Official Cash Rate) by 25 basis points to 4.75%, whilst the Melbourne Cup was on. It was the first interest rate rise in 6 months. This is interesting in that Australians already face higher interest rates, and whilst the Global Financial Crisis in mid-late 2008 did impact their housing markets, they haven’t had a recession and many experts view that Australian property is in for a very rough ride over the next year or two.
Interestingly the Commonwealth Bank of Australia (owner of ASB Bank and Sovereign in New Zealand) raised their floating rates by 0.45% (20 basis points more than the benchmark rate was raised), drawing consternation from Australian Treasurer Wayne Swann, with this is “a cynical cash grab” by an ‘arrogant’ bank. Also the Australian Dollar (Aussie) reached a new height with $1 Australian Dollar buying $1.0024 US Dollars at its overnight peak. The Aussie is forecast to go much higher against the Dollar as the US Federal Reserve is planning a second round of Quantitative Easing. They are predicted to print at least US$500 billion of money (using it to buy long-term securities). Will this buy happiness on “Main Street”, possibly but probably not. What it is more likely to do is cause the Dollar to continue to spiral down against many other currencies including the Aussie and Kiwi, and have large inflationary pressures. The announcement from the US Federal Reserve is due shortly.
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Glenn Stevens, the Governor of the Reserve Bank of Australia (“RBA”) has just raised the Australian Offical Cash Rate 0.25% to 4.25%.
This is important to New Zealand as sadly we do tend to try to follow our big brother country and closest neighbour, Australia. Now we don’t have the same pressures as Australia do in terms of our economy still struggling a little bit. We are out of recession, but business is hardly booming. Unemployment is still high, and house prices are not taking off, and moving upwards as they did in 2009.
As a result on 29 April, our Reserve Bank Governor Alan Bollard will in all likelihood leave our OCR unchanged at 4.25%. On 10 June currently I am 75% confident that he will also leave the OCR unchanged. Unfortunately our economy is not currently as good as Australia’s economy, and nor has it been for quite a while.
RBA Governor Stevens was worried last week that house prices were “getting too high”, and in response to questions about inflicting pain on home owners and property investors through causing higher short and medium term rates:
Interest rates to most borrowers nonetheless have been somewhat lower than average…
With growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average.”
New Zealand is very much a different country to Australia, and currently we have few inflationary pressures, cyclically high unemployment and very low house price growth, and an already high currency (higher interest rates tend to mean overseas investors buy NZ Dollars to invest for the good yields they can get), we have far less pressure on us to raise our interest rates.
See the NZ Herald article for more details.