RBA Cuts Interest Rates, Will The RBNZ Follow?
The Reserve Bank of Australia (RBA) cut its interest rates by 25 basis points (bps) in line with market expectations this morning. The Australian dollar, though, remained stable as traders seemed to have priced in the RBA’s monetary policy move.
Tomorrow it will be the Reserve Bank of New Zealand (RBNZ) turn to decide on interest rates with some market analysts expecting an adjustment coming up.
Later today, the Bank of Canada (BoC) and Statistics Canada will release inflation data for the month of January.
Table of Contents
RBA Interest Rate Decision
The RBA’s board announced a 25 bps interest rate cut as it was expected by analysts. This was the first cut since November 2020 while it should be noted that the Australian central bank had kept its benchmark interest rate at 4.35% for more than a year. Between May 2022 and November 2023, the RBA hiked rates 13 times.
Reserve Bank of Australia Governor Michele Bullock stressed that although markets project future rate cuts, these are not guaranteed. The RBA’s head said that future decisions would be data dependent and mentioned that a victory in the battle against inflation cannot be declared yet. Bullock mentioned that “tariff threats are unpredictable, would be bad for economic activity.” The RBA’s inflation forecasts were also updated showing that CPI inflation could drop to 2.7% by June and then stay around there through 2026 and 2027.
RBNZ Interest Rate Decision
The RBNZ’s governing board will convene on Wednesday to discuss matters of monetary policy including borrowing costs. Economists suggest that the RBNZ could proceed with a 50 bps interest rate cut in order to help the economy grow faster. It should be noted that New Zealand’s central bank was one of first to increase rates when the inflation crises had started to kick in.
During 2024, the RBNZ cut borrowing costs by 125 bps. Market analysts anticipate further cuts from the RBNZ through the end of the year. A Reuters poll showed that thirty-two of 33 economists expected the central bank to cut the official cash rate (OCR), opens new tab for the fourth straight meeting.
ASB analysts commenting on the RBNZ’s policies told RBZ reporters the following: “Our base case is the RBNZ will cut by 25bp at each of the following two meetings, in April and May. We assume events will keep the RBNZ comfortable that inflation will remain contained. The risks appear roughly balanced between spacing OCR moves out or delivering yet another 50bp. But events will matter. The risks are no longer one-sided: the RBNZ might not cut the OCR as far as markets already anticipate, and Donald Trump has at times pushed interest rates up.”
In the same report, Kiwibank analysts said that “with the 2 percent target inflation rate virtually achieved, we believe the RBNZ needs to take their hand off the handbrake and put policy into neutral,” adding that “we're expecting to see the OCR track pushed lower and pulled forward. That is to say, we expect more rate cuts sooner rather than later. Our view remains. We think a total of 125bp this year, to get us to 3 percent, is needed… with risk of more.”
UK CPI Inflation January 2025 Report
On Wednesday, markets will have the opportunity to scrutinise data regarding the UK CPI inflation for the month of January. Forecasts by market analysts say that headline CPI inflation could rise from 2.5% to 2.8% on an annualised basis while the core CPI inflation could increase from 3.2% to 3.7% on a yearly basis.
In other news from the UK, the latest employment data from the Office for National Statistics (ONS) showed that salaries rose by 6% per year in the October-December quarter, up from 4.4% in July-September, surpassing analysts’ expectations.
Test Your Trading Strategies on an Admiral Markets Risk-Free Demo Account
Are you interested in practising trading without risking your funds? A demo trading account from Admiral Markets allows you to do just that, whilst trading in realistic market conditions. Click the banner below to open a demo account today:
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
