The upside to rates divergence

Disparate interest-rate approaches across major economies are not necessarily a bad thing, according to ANZ’s Richard Yetsenga. Instead, it’s a sign there are no broad concerns from central banks about the health of the global economy.

“It looks all a bit mushy and a bit confusing,” ANZ’s Chief Economist told ANZ Institutional Insights on video.

“I take a bit of solace from it though, because what it says is this is still a global environment where the global economy is doing okay. No central banks are sending big warning signs about some big correlated global problem.”

Watch the video below to find out more.

{video}

Earlier in October, the Reserve Bank of New Zealand reduced its official cash rate by 50 basis points to just 2.5 per cent, and said it “remains open” to further cuts. In contrast, the Reserve Bank of Australia (RBA) held its benchmark rate at 3.6 per cent at it September meeting.

The divide is also clear in the United States, where “public views from [Federal Reserve] officials are the most divergent we've seen in quite a long time”, Yetsenga said.

“I think one of the features of a mid-cycle slowdown, which is terminology I keep using, is rate moves are going to be very decorrelated across economies,” Yetsenga said.

The Federal Reserve’s next meeting will be held on October 28 and 29, although the ongoing US government shutdown could limit the official data available.

The next RBA rate announcement is set for November 4. ANZ Research no longer expects a cut to Australia’s official cash rate in 2025, and thinks February is the next plausible option.