© Reuters. FILE PHOTO: Pedestrians walk near the main entrance to the Reserve Bank of New Zealand located in central Wellington, New Zealand, July 3, 2017. REUTERS/David Gray
By Vivek Mishra
BENGALURU (Reuters) – New Zealand’s central bank will raise rates for the second meeting in a row on Wednesday and continue with its tightening spree next year as it tries to put a lid on rising inflation and cool an overheated housing market, a Reuters poll found.
Large amounts of fiscal and monetary stimulus injected to alleviate pandemic pain have helped the economy recover strongly and pushed inflation to its highest and the jobless rate to its lowest in over a decade.
That has prompted financial markets to price in a series of interest rate hikes through next year that economists have mostly matched in their forecasts.
All but one of 20 economists in a Nov. 15-18 Reuters poll predicted the Reserve Bank of New Zealand (RBNZ) would raise the official cash rate by 25 basis points to 0.75% at its Nov. 24 policy meeting. Markets are fully pricing in a 25 basis point rise too.
The one dissenter expected a 50 basis point hike.
“Unlike other central banks, the RBNZ doesn’t have the luxury of time on its side. They are on a hiking cycle for sure; we have seen one rate rise, we will get another one next week and I think they will raise in every meeting into next year,” said Jarrod Kerr, chief economist at Kiwibank.
“The economic climate is much hotter than the RBNZ envisioned … the decision to lift interest rates is in part due to the excesses seen in the housing market.”
Ben Udy, an economist at Capital Economics, forecasts a 50 basis point hike from the RBNZ on Wednesday, which if realised, would bring rates back to their pre-pandemic level of 1.00%.
“The fact that every measure of underlying inflation which the Bank monitors is now around or above the top end of the Bank’s target, it’s obvious that more monetary tightening is needed,” Udy said.
Medians predict the official cash rate (OCR) reaching 1.75% by the end of next year and 2.0% by end-2023. Still, that is below what it was in 2014 after the RBNZ last delivered four consecutive quarter-point rate hikes.
New Zealand’s annual inflation rose to 4.9% in the third quarter, the fastest pace in over a decade, driven by housing-related costs and other supply constraints.
The RBNZ also warned that more persistent inflationary pressures and any increase in inflation expectations, coupled with weaker growth, could lead to a sudden tightening in financial conditions.
On the other hand, the jobless rate fell to 3.4% in the third quarter, matching its lowest on record from December 2007. That was around the same time when the U.S. economy fell into a deep recession after the housing bubble burst.
New Zealand’s sizzling housing market will also figure prominently in the monetary policy decision of the central bank, which recently said house prices are above their sustainable level and that increases the chance of a correction.
House prices have nearly doubled in the last seven years and are the most unaffordable among OECD nations due to a chronic housing shortage, historically low interest rates and cheap access to capital from the government’s pandemic-driven stimulus spending.
“The labour market is the tightest it has ever been and inflation pressures are intense, but on the other hand the housing market cycle is looking very mature, and there’s the small matter of COVID spreading its way around the country,” said Sharon Zollner, chief economist at ANZ.
“On balance, the case for tighter monetary conditions is clear.”
South Korean exports dropped 14% in November, the highest in 2.5 years
South Korea’s exports fell 14 percent year-on-year to $51.91 billion in November, preliminary data from the Ministry of Commerce, Industry and Energy showed. The November drop was the biggest in 2.5 years since May 2020 and was caused both by the deteriorating global economy, which even a Google price chart showed, and a truckers’ strike in the country.
South Korea exports 2022 – reasons for the drop
Exports fell for the second month in a row. Analysts on average expected an 11% decline, according to Trading Economics. Respondents to MarketWatch predicted a 10.5% decline.
Shipments of semiconductor products overseas, the country’s top export item, fell 29.8%; petrochemicals fell 26.5% and steel exports fell 10.6%. Meanwhile, exports of automobiles jumped 31% and petroleum products 26%.
Exports to China, South Korea’s largest trading partner, fell by 25.5%, and to Asian countries – by 13.9%. Below, supplies to the USA grew by 8% and to the European Union – by 0.1%.
In January-November exports rose by 7.8% on the same period last year and reached a record $629.1 billion.
South Korean imports rose 2.7% to $59.2 billion in November, marking the 23rd consecutive month of gains, but the current rate of growth is the lowest since November 2020. Experts had predicted an increase of only 0.2%.
South Korea’s trade deficit last month was $7.01 billion, compared with a surplus of $2,973 billion a year earlier.
The negative balance was recorded for the eighth month in a row. As a result, by the end of 2022, the country may record a foreign trade deficit for the first time since the financial crisis in 2008.
Earlier we reported that the UN estimates the cost of humanitarian aid in 2023 at a record $51 billion.
The UN estimates humanitarian aid costs in 2023 at a record $51 billion because of an impending humanitarian crisis
Joint humanitarian operations will require a record $51.5 billion in 2023 to address urgent problems.
The UN Office for the OCHA estimates that 339 million people will need urgent aid in 2023. At the same time, OCHA called on donor countries to provide funds for assistance in 2023 to the 230 million people most in need, living in 68 countries.
Griffiths explained that aid is needed not only for people experiencing conflicts and disease outbreaks. but also for those suffering the effects of climate change, such as people in peninsular Somalia facing drought and those in Pakistan experiencing severe flooding. For the first time, the growing humanitarian crisis has brought the number of displaced people worldwide to the 100 million mark. Also worsening an already bad situation is the worldwide coronavirus pandemic, which affects the poor. Note that the general economic crisis has begun to negatively affect even the Netflix price chart.
Earlier we reported that house prices in the UK fell by 1.4% in November.
Average house prices in the UK fell 1.4% in November
Average house prices in the UK fell 1.4% in the previous month in November to 263,788 thousand pounds (about $319,000), according to the British mortgage company Nationwide Building Society.
The decline was recorded at the end of the second consecutive month and was the most significant in almost 2.5 years – since June 2020. Analysts on average had forecast a decline of only 0.3%, according to Trading Economics.
Are house prices in the UK going to fall even more?
Residential real estate prices in November compared to the same month last year increased by 4.4%. At the same time, experts expected a larger increase of 5.8%. The growth rate slowed down significantly compared with 7.2% in October. Because of the difficult economic situation, British investors are investing in other instruments. The Microsoft price chart, for example, is showing potential for growth, so many are interested in the U.S. stock market.
“The market looks set to remain under pressure in the coming quarters. Inflation will remain high for some time, and interest rates are likely to continue to rise,” believes Nationwide Senior Economist Robert Gardner. – The outlook is unclear, and much will depend on how the overall economy behaves, but a relatively soft landing is still possible.”
Earlier we reported that Sanctions Circumvention was included in the EU’s list of criminal offenses.
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