The RBNZ\u2019s decision to hold its overnight cash rate at 2.75 per cent came as a big surprise to investors, defying market expectations.<\/p>\n
And it came with a warning over \u201cabrupt\u201d global downturn fears, which has grabbed some economists\u2019 attention.<\/p>\n
<\/p>\n
\u201cMembers noted that the increase in global long-term yields may partly signal a higher global neutral interest rate, due to higher inflation expectations, war destruction and demand for capital to support AI investment,\u201d the RBNZ\u2019s post-meeting statement read.<\/p>\n
\u201cHigher global interest rates could bring forward a potential global downturn, and the neutral interest rate could decline rapidly in the event of an abrupt global adjustment.\u201d<\/p>\n
The committee said information arriving over the next six weeks could \u201cmeaningfully change\u201d their stance on interest rates.<\/p>\n
They noted a risk that inflation became entrenched, despite the bank\u2019s previous two interest rate hikes.<\/p>\n
\u201cIn addition, the world economy could tip abruptly into a downturn causing weaker inflation over the medium term,\u201d its statement read.<\/p>\n
\u201cIt is also possible that geopolitical escalation could drive fuel prices higher while weakening global economic activity at the same time.\u201d<\/p>\n
Inflation data cements RBA November hike<\/p>\n
All of the Big Four banks now expect the RBA will hike interest rates for a fifth time this year at its November meeting next week.<\/p>\n
Westpac chief economist Luci Ellis said inflation was still too high, while the RBA was \u201csanguine\u201d about the labour and housing markets.<\/p>\n
\u201cRecent data and communication have consistently pointed to the staff recommending an increase in the cash rate. We expect a majority of the external members to agree, though some members might dissent,\u201d she said.<\/p>\n
She pointed to the RBNZ\u2019s post-meeting comments about the risk of the global economy weakening suddenly, but said it wasn\u2019t the bank\u2019s base case.<\/p>\n
\u201cThis risk was something the RBNZ MPC thought could crystallise in the next six weeks,\u201d she said.<\/p>\n
\u201cWhether on this timetable or something more drawn out, this possibility does not appear to be on the RBA\u2019s radar. <\/p>\n
\u201cNor is it our base case, though we have previously worried that the AI financing boom could hit a wall quite suddenly. <\/p>\n
The annual inflation rate rose to 4.3 per cent in September, up from 4 per cent a month earlier.<\/p>\n
Trimmed mean inflation rose 3.6 per cent, up from 3.5 per cent after the August trimmed mean was revised lower.<\/p>\n
The market is pricing in roughly a 90 per cent chance of a rate hike next week, which would send the cash rate to the highest level it has been since the GFC.<\/p>\n
AMP economists said the hotter than expected inflation figures were enough to \u201clock in\u201d a hike from the RBA next week.<\/p>\n
\u201cAnother 0.25 per cent rate increase would take the cash rate to 4.85 per cent \u2013 its highest level since 2008 and this would be the fifth rate increase this year,\u201d AMP economists My Bui and Diana Mousina wrote in a note.<\/p>\n
\u201cThe question is whether this is enough to \u2018get the job done\u2019 on inflation. There are signs that the economy is slowing (decline in PMIs, slump in housing, rise in unemployment) which should help to ease inflation. <\/p>\n
\u201cThe hope is that inflation slows without crashing the economy. We see GDP growth low in the next 12 \u2013 18 months, but we think a recession will be avoided.\u201d<\/p>\n
US Fed leaves rates steady<\/p>\n
The US Federal Reserve committee voted 10-2 to hold rates at a target range between 3.75 to 4.00 per cent, as expected, citing the need for more data in the fight against inflation.<\/p>\n
Two dissenters, Governor Lisa Cook, who is still under investigation from the White House, and Cleveland Fed President Beth Hammack, who has been a consistently hawkish voice, voted in favour of an immediate 25 basis point hike.<\/p>\n
US Fed Chairman Kevin Warsh said inflation remained \u201ctoo high\u201d but insisted that politics played no part in the central bank\u2019s decision not to continue raising rates days before crucial midterm elections. <\/p>\n
\u201cEnergy and related prices have moved higher again in recent weeks, and our job is to ensure that relative price changes in some sectors do not broaden out across the economy,\u201d Warsh told reporters.<\/p>\n
Still, he said the FOMC needed more information in the coming weeks to \u201cdetermine the policy stance appropriate to ensure a timely return of inflation to the two-percent goal.\u201d<\/p>\n
Markets are still predicting an 84 per cent chance of a rate hike in December when the US Fed meets next. They are also expecting an additional two rate increases by the middle of next year.<\/p>\n
US consumer inflation came in hotter than expected in September at 3.7 per cent. The central bank has missed its 2 per cent inflation target for more than five years.<\/p>\n
Bank of Canada, meanwhile, hiked interest rates for the first time in three years overnight.<\/p>\n
It made a 25 basis point hike to the benchmark overnight rate to 2.5 per cent on Wednesday, in a move that was 85 per cent priced by markets.<\/p>\n
The central bank said the move was made\u201d to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services\u201d.<\/p>\n
\u201cThere could be a need to increase the policy rate further, but given uncertainties, Governing Council agreed to proceed carefully,\u201d it said.<\/p>\n
The bank now expects inflation won\u2019t return to its 2 per cent target until the middle of 2028. A December hike is priced at just over 50 per cent.<\/p>\n
This content was created in partnership with CommSec.<\/p>\n
Read related topics:Investing<\/a>Reserve Bank<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Central banks around the world have been ramping up their fights against inflation, with the Bank of 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