Markets with Madison: RBNZ v. RBA - Who’s getting inflation fight right?

The Reserve Bank of New Zealand has taken more aggressive action against inflation than its Australian counterpart but the pace of price growth across the ditch has already started to slow.

HSBC chief economist for Australia, New Zealand and Global Commodities Paul Bloxham told Markets with Madison the two central banks had taken different approaches to tackling a similar inflation problem, with the RBNZ deliberately delivering a recession and the RBA aiming to avoid one.

“I think a lot of it reflects how they’re reacting to the information, how they interpret their mandates, rather than differences in the economy itself.”

The RBNZ has lifted the benchmark rate by more than 4 per cent in 18 months - a cycle that has been longer and likely more economically devastating than Australia’s.

New Zealand’s official cash rate was sitting at 4.75 per cent after a 0.5 per cent hike in February. Another 0.25 per cent increase was expected next week, as inflation remained above 7 per cent.

Australia’s cash rate target was 3.6 per cent, following a 10-month hiking cycle of mostly small 0.25 per cent increase increments.

Its annual inflation rate dropped to 6.8 per cent in the month of February, from 7.4 per cent the month before, theoretically as a result of those interest rate hikes by the Reserve Bank of Australia.

In today’s episode of Markets with Madison, Bloxham explains the differences in economic data that likely lead to the RBNZ hiking by larger amounts, for longer, and why inflation here could be harder to budge.

Get investment analysis and insights from the experts on Markets with Madison every Monday and Friday on the NZ Herald.

Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.