OPINION: While Australia and New Zealand have almost identical inflation problems, interest rate settings are radically different.
The RBNZ has also been a lot tougher than the Reserve Bank of Australia, aggressively raising its cash rate to 5.5 per cent compared with Australia’s internationally low cash rate of just 4.1 per cent .
Finally, the RBNZ also stopped printing money and buying bonds six months before the RBA, and has committed to sell these bonds back to the New Zealand treasury, which the central bank presciently obtained a loss indemnity from before buying the bonds . Unfortunately, this is playing out in extremely elevated unit wage costs , which are increasing at an annual rate of 7.9 per cent and 7.4 per cent in Australia and New Zealand, respectively.
In contrast, the RBA is much more sanguine, expecting the jobless rate to rise only slightly to 4.5 per cent, which matches its staff assumption of where the full employment threshold sits. The RBA further asserts that it can pull this off without a recession insofar as the forecast rise in unemployment only reflects jobs growth not keeping pace with population growth.Speaking to bankers in New Zealand, they are starting to see clear signs of stress emerging.
Kiwi portfolios are extremely liquid with very little exposure to private markets, which contrasts strikingly with many Aussie portfolios that are loaded to the gills with private equity and debt.
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