The Reserve Bank of Australia (RBA) Holds Steady on Cash Rate
- RBA’s Decision: The RBA maintained its Official Cash Rate at 4.35% this week. This move reflects a careful approach, especially as global central banks continue with rate hikes.
- Comparative Policy: Unlike the Reserve Bank of New Zealand, which pursued a more aggressive rate hike path, the RBA’s relatively moderate rate hikes have kept its rates in a less restrictive zone. This, however, is contributing to the persistence of inflationary pressures.
- Inflation Status: Governor Bullock commented that inflation remains “still too high.”Core “trimmed mean” prices rose by 3.5% over the past year, reflecting underlying inflation pressures. Headline inflation has finally entered the RBA’s target range of 2-3% for the first time in over three years, showing some progress.
- Governor Bullock commented that inflation remains “still too high.”
- Core “trimmed mean” prices rose by 3.5% over the past year, reflecting underlying inflation pressures.
- Headline inflation has finally entered the RBA’s target range of 2-3% for the first time in over three years, showing some progress.
- Future Outlook: Despite signs of improvement, the RBA’s stance remains hawkish, signalling that rate cuts are not imminent. Market pricing suggests a 50/50 chance of a rate cut by April 2025, with a full 25 basis point reduction likely by July 2025.
U.S. Federal Reserve Lowers Interest Rates Amid Shifting Economic Landscape
- Fed’s Rate Cut: The Federal Reserve trimmed its interest rates by 0.25 percentage points on Friday, setting the new benchmark overnight interest rate in the range of 4.50%-4.75%.
- Economic Indicators: Job Market: The Fed observed that the job market has “generally eased.”Inflation Progress: Inflation appears to be gradually aligning with the Fed’s 2% target, though the journey continues.
- Job Market: The Fed observed that the job market has “generally eased.”
- Inflation Progress: Inflation appears to be gradually aligning with the Fed’s 2% target, though the journey continues.
- Political Backdrop: The rate cut was overshadowed by significant political events, including Donald Trump’s return to the U.S. presidency at age 78, coupled with a strong Republican showing in Congress. This political shift has potential implications for both domestic and international markets. The developments are considered historic and are expected to influence future economic policies.
- The rate cut was overshadowed by significant political events, including Donald Trump’s return to the U.S. presidency at age 78, coupled with a strong Republican showing in Congress. This political shift has potential implications for both domestic and international markets.
- The developments are considered historic and are expected to influence future economic policies.
New Zealand’s Rising Unemployment Reflects Economic Pressures
- Quarterly Employment Data: Unemployment rose by 0.2% to 4.8%, undershooting the expected rate of 5.0%.The increase was driven primarily by a decline in the number of labour market participants, especially among young people (ages 15-24), a likely reflection of ongoing post-Covid migration patterns.
- Unemployment rose by 0.2% to 4.8%, undershooting the expected rate of 5.0%.
- The increase was driven primarily by a decline in the number of labour market participants, especially among young people (ages 15-24), a likely reflection of ongoing post-Covid migration patterns.
- Economic Implications: A shrinking labour force, particularly among young workers, generally signals a challenge for economic growth and resilience. Such trends could further pressure businesses and reduce economic vitality over the long term.
- A shrinking labour force, particularly among young workers, generally signals a challenge for economic growth and resilience.
- Such trends could further pressure businesses and reduce economic vitality over the long term.
Bank of England (BoE) Implements Rate Cut Amid Budgetary Pressures
- Rate Cut Decision: The BoE reduced its interest rate from 5% to 4.75% in an 8-1 vote, marking only the second rate cut since 2020.
- Inflationary Concerns: Governor Andrew Bailey stressed the need for gradual rate cuts to manage inflation effectively. The recent U.K. budget, characterized by substantial borrowing and spending, is anticipated to add roughly 0.5% to inflation at its peak within two years.
- Governor Andrew Bailey stressed the need for gradual rate cuts to manage inflation effectively.
- The recent U.K. budget, characterized by substantial borrowing and spending, is anticipated to add roughly 0.5% to inflation at its peak within two years.
- Economic and Global Risks: Inflation is projected to climb to around 2.5% by the end of 2024 and further to 2.7% by the end of 2025. Domestic inflationary pressures include policies like bus fare caps and increased social security contributions for employers. The BoE also noted potential risks from new U.S. tariffs under President-elect Trump, which could complicate inflation control efforts.
- Inflation is projected to climb to around 2.5% by the end of 2024 and further to 2.7% by the end of 2025.
- Domestic inflationary pressures include policies like bus fare caps and increased social security contributions for employers.
- The BoE also noted potential risks from new U.S. tariffs under President-elect Trump, which could complicate inflation control efforts.
Summary
- RBA: Holds rates steady, maintains hawkish outlook as inflation remains an issue.
- Fed: Cuts rates amid eased job market and gradual inflation alignment with targets.
- New Zealand: Rising unemployment reflects labor force contraction, signaling economic stress.
- BoE: Cautiously cuts rates to balance domestic budget impacts with global inflationary risks.
Each central bank’s rate cut strategy highlights the delicate balancing act required in today’s intricate economic environment, where local pressures and global uncertainties significantly influence monetary policy decisions.
Source: PWC
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