How Will Fed's Rate Cut Impact Australia and New Zealand?
As New Zealand's inflation rate dropped to 3.3% in July, the Reserve Bank of New Zealand (RBNZ) announced its first interest rate cut in four years.
On August 15, the RBNZ unexpectedly lowered the Official Cash Rate (OCR) from 5.5% to 5.25%. This marks a significant shift from the RBNZ's previous guidance (as recent as May), which suggested that interest rates would not be cut until August 2025.
Rate cut cylce already begins in New Zealand! Expect 3+% in 2025?
Although inflation is now close to its target range of 1% to 3%, RBNZ emphasized that policy will need to remain restrictive for some time but still predicts that the cash rate will reach 3.85% by the end of 2025.
Following the RBNZ's reduction of the OCR, major banks in New Zealand quickly took action to lower mortgage rates, a move that benefits homeowners facing high interest rate pressures.
In the wake of New Zealand's rate cut, speculation has begun about when Australia might start cutting rates.
This week, Australia's four major banks announced reductions in term deposit rates.
$COMMONWEALTH BANK OF AUSTRAL(CBA.AU)$ led the way by cutting rates on nearly all its term deposit products by up to 50 basis points (0.5%). Shortly after, $NATIONAL AUSTRALIA BANK LTD(NAB.AU)$ and $ANZ GROUP HOLDINGS LTD(ANZ.AU)$ followed suit with similar measures.
These rate cuts could reduce interest earnings on a 100,000 AUD deposit by up to 730 AUD over 12 months.
Many believe that rate cuts in Australia are finally on the horizon! However, the Reserve Bank of Australia (RBA) remains hawkish.
Why have Australian commercial banks started to preemptively lower rates?
This move is primarily in anticipation of a potential rate cut by the RBA. The market expects the RBA to cut rates in December, though the expected reduction is only 25 basis points. Lowering deposit rates can effectively ease the profit pressure caused by intense competition.
This move reflects a broader trend, with experts suggesting that the RBA may be at the peak of its rate-hiking cycle.
A rate cut by the US Federal Reserve could accelerate the pace of rate cuts in Australia.
Besides the mentioned relief on mortgage pressures, a rate cut could also shift investor focus towards high-dividend companies. If deposit yields decrease following a rate cut, high-dividend stocks in Australia could become a better option.
Some banks, mining, and energy companies in the Australian stock market are known for their high dividends, which typically offer stable and substantial returns, attracting investors seeking regular income.
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Some banks, mining, and energy companies in the Australian stock market are known for their high dividends, which typically offer stable and substantial returns, attracting investors seeking regular income.
How do you view?
What stocks do you recommend?
Leave your comment and also post to win tiger coins~