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Business Weekly Economic Report
RBA cat amongst the pigeons
Monday, 12 October 2009
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Last week the Reserve Bank of Australia hiked its cash rate earlier than many were expecting. The move has triggered debate about the pace of future rate increases there, and also a few questions over the implications for NZ rates.
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Just because the RBA has hiked, that doesn’t automatically imply the RBNZ will follow suit. In contrast to Australia, NZ’s economy has shrunk 3% since the end of 2007. The starting point for inflation in NZ is of disinflationary, rather than inflationary, forces.
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But one lesson from Australia is that there comes a time when central banks get uncomfortable about leaving interest rate settings at extraordinarily low levels, prompting lifts to a less stimulatory level. To us the RBA’s action reinforces that risk: the RBNZ could also opt for a relatively early but gradual removal of some stimulus.
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Report Prepared by:
Jane Turner
ASB Economist
Phone: +64 9 374 8185
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