Weekend Edition: A world of difference - RBNZ v RBA

NAB Morning Call

Friday 16th August 2024

Please note this communication is not a research report and has not been prepared by NAB Research analysts. Read the full disclaimer here.

On the face of it you’d wonder why central banks in New Zealand and Australia have taken such different paths when it comes to fighting inflation. They are both western economies that were growing reasonably well before the pandemic. Their response in 2020 was similar, with massive fiscal injections and quite severe lockdowns. So, why such a radical difference in the response to inflation post-pandemic? The RBNZ is rapidly cutting rates, whilst the RBA is unlikely to start until next year.

Stephen Toplis, Head of research at BNZ Markets in Wellington, says the economies are not the same. Even before the pandemic New Zealand was suffering with labour shortages, pushing wages higher. Now the economy has seen a more significant slowing, in part due to their higher level of rates. As Gareth Spence points out, NAB’s Head of Australian Economics, there is certainly an adjustment going on in Australia, but overall the economy and labour market have been resilient.

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