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New Zealand joins Canada and reporting rates could increase next year

(Bloomberg) – Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast. New Zealand’s central bank has forecast that its official cash rate may start to rise in the second half of next year, joining Canada to mark a possible withdrawal of stimulus measures as economies recover from the pandemic. The Kiwi dollar and bond yields surged. The Reserve Bank on Wednesday released for the first time in more than a year an OCR forecast that shows the rate starting to rise in mid-2022. Any increase would be conditional on the economy going as expected, the RBNZ’s monetary policy committee said. He kept the benchmark rate at 0.25% and kept the bond buying program at NZ $ 100 billion ($ 73 billion). “These are highly conditional projections,” Governor Adrian Orr said at a press conference in Wellington. “You’re talking about the second half of next year, who knows where we’ll be by then.” The New Zealand dollar nonetheless surged as investors increased their bets on higher rates, with two-quarter point hikes now expected next year. . The kiwifruit bought 73.08 cents US at 4:35 p.m. in Wellington, down from 72.31 cents previously. Swap rates and bond yields also surged, with the 10-year yield gaining more than 10 basis points. Central banks pushed back concerns about mounting inflationary pressures, signaling that they wanted the economic recovery after the downturn. pandemic is firmly entrenched before considering a policy. contraction. But New Zealand’s success in containing Covid-19 has allowed its economy to rebound faster than most, and the strength of its labor market has already prompted some economists to cut rate hikes for 2022. “With RBNZ becoming one of the first central banks in advanced economies to raise rates, we believe the New Zealand dollar will continue to strengthen against the US dollar,” said Marcel Thieliant, senior economist for Australia and New Zealand at Capital Economics in Singapore. , suspended since the beginning of last year, shows that the average rate rose to 0.31% in the second quarter of 2022 and to 0.67% at the end of the year. This implies an increase of at least a quarter of a point in the second half of the year. The track shows that the rate climbs to 1.78% by June 2024, the end of the forecast period. The RBNZ “has unequivocally moved to a tightening bias,” said Stephen Toplis, head of research at the Bank of New Zealand in Wellington. “By reintroducing her OCR projection track, and including several rate hikes in that track, there can be no doubt as to where she sees the risks on the current 0.25% cash rate.” The projections put New Zealand at the forefront of removing stimulus measures. following the pandemic. Canada is also a potential forerunner, with its central bank announcing a reduction in debt purchases last month and projecting a faster economic recovery that could pave the way for rate hikes next year. appropriate time to scale back quantitative easing in upcoming meetings, while Australian policymakers must decide in July whether or not to extend their bond purchases. The RBNZ said today that its quantitative easing program may fail. reach the limit of NZ $ 100 billion upon maturity. end in June 2022, reflecting the latest projections for government bond issuance. This reduction in emissions put less upward pressure on bond yields, he noted. New Zealand’s economy has experienced a V-shaped recovery from last year’s pandemic-induced recession and the real estate market is booming. The unemployment rate fell to 4.7% in the first quarter and the central bank now forecasts inflation to accelerate to 2.6% this quarter, breaking the midpoint of its target range of 1-3% . 2022 before gradually rising to 2% in 2023, a faster recovery than previously expected Double-dip recession? Gross domestic product declined in the last quarter of last year and the RBNZ is now forecasting a 0.6% drop in GDP in the first quarter. year, indicating that the economy may have experienced a double-dip recession. However, annual growth will accelerate to 3.4% by March of next year, according to today’s projections. In February, the bank forecast growth of just 1.4% during this period. “Confidence in the outlook increases as the more extreme negative health scenarios diminish given the progression of immunization around the world,” said RBNZ. “We remain cautious, however, given the virus-related activity restrictions, sectoral inequality of the economic recovery and the low level of business investment.” (Updates with Governor’s comment in third paragraph) More articles like this are available on bloomberg.com now to stay ahead of the curve with the most trusted source of business news. © 2021 Bloomberg LP


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