​By Gareth Vaughan

The Reserve Bank of Australia's decision to lift its cash rate 25 basis points this week means it's now 160 basis points higher than the Reserve Bank of New Zealand's official cash rate highlighting differing levels of assertiveness between the two central banks, Imre Speizer, Head of New Zealand Strategy at Westpac, says.

The RBS's cash rate is now at 3.85% with the RBNZ's OCR at 2.25%. Speaking in a new episode of the Of Interest podcast, Speizer says it has been 13 or 14 years since there has been such a gap, with the two economies tending "to cycle together most of the time."

"It comes down to a different central bank approach. The RBA has deliberately maintained a fairly dampened approach to tackling either low inflation or high inflation. So when it has needed to hike or cut, it has done [so] in a very cautious and drawn out manner. And by doing so it hasn't had to flip around as much as the likes of some other countries," says Speizer.

"The central bank of New Zealand has been pretty much an activist in terms of tackling inflation. So when inflation was high in the most recent cycle it went fairly hard and hiked rates a lot to bring it back down again, and that then amongst other things did help to engineer a brief recession."

"It paid a cost to do so but it got inflation under control. Now we're basically coming out of that era and [economic] growth is starting to pick up. And so the Reserve Bank [of NZ] is now faced with the task of thinking well at what point do we need to start thinking about pushing rates up to prevent inflation from running away?"

"I guess it just means the assertiveness of the relative central banks is probably explained [in] why we've ended up with such big differences between New Zealand interest rates and say the Australian interest rate. In time that will rectify itself and will get back to something that looks a bit more normal, I.E. Kiwi rates a little bit higher than Aussie rates. But I think it's going to be some way down the track," Speizer says.

He says lots of people are asking how the cash rate differential between New Zealand and Australia might play out with mortgage rates.

"There shouldn’t be any direct impact if the cause of Australian rate rises is unique to Australia. But much of the time, there is a common global factor at play, so New Zealand rates do follow Australian and US term rates," Speizer says answering a follow-up question to the podcast interview.

"Also, if the strong Australian economy is seen as eventually benefitting New Zealand’s economy, New Zealand term rates could rationally follow Australian rates higher in dampened fashion."

In the podcast audio he also speaks about the direction of swap rates and what it means for mortgage rates, what the yield curve's suggesting at the moment, the outlook for NZ government bonds, the impact the volatility of US President Donald Trump's administration has on the US dollar and financial markets more broadly, incoming Federal Reserve Governor Kevin Warsh, the impact of US government shutdowns on economic data availability, geopolitics and more.​

​By Gareth Vaughan

Governor Anna Breman has implied the Reserve Bank's Monetary Policy Committee will increase the Official Cash Rate (OCR) in the run-up to November's election if members believe this is what is required.

"We are statutory independent. We are an independent central bank, like you point out, and we will do what is best for the New Zealand economy and to reach our inflation target," Breman told interest.co.nz in a new episode of the Of Interest podcast.

She was asked if the Reserve Bank believes increasing the OCR is necessary, she would be comfortable doing so in the run up to November's election.

Breman was speaking on Friday, after the release of Statistics NZ's December quarter Consumers Price Index (CPI) showed annual inflation at 3.1%, above the Reserve Bank's 1% to 3% target range.

"We are carefully looking through all the data. It's clear that there are some items in there that typically are very volatile. They can change a lot between different quarters. But of course 3.1% is high and it means that inflation that's been hurting households for many years is still above where we want it to be, but the outlook is still favorable in terms of inflation going forward. So it's also important to stress that we will focus on getting inflation back in the target band and towards the midpoint of the target band," Breman said.

The Reserve Bank reviews the OCR for the first time this year on February 18.

In a note following the CPI release BNZ Head of Research Stephen Toplis said financial markets had almost fully priced in a first OCR increase for the Reserve Bank's September 2 Monetary Policy Statement. And BNZ's economists have brought forward their expectations for a first OCR hike to September 2 from February 2027.

"One thing that needs to be taken into consideration is the General Election on November 7. The Reserve Bank is operationally independent so it can broadly do what it wants when it wants, but central banks are not keen to become embroiled in election campaigns if it can be avoided," said Toplis.

"In our opinion, this means the 28 October Monetary Policy Review would be far from optimal for a first rate hike. Moreover, it’s always easier to tell the full story with a complete Monetary Policy Statement when a hiking cycle, or cutting, begins."

Breman said she doesn't comment directly on market pricing. The OCR is currently at 2.25%, having been reduced from 5.50% since July 2024.

In the podcast audioBreman speaks further about inflation including the challenges facing households, whether she expects help from government with the inflation fight, limits to Reserve Bank monetary policy, her recent support of US Federal Reserve Chairman Jerome Powell and the response from Foreign Minister Winston Peters and Finance Minister Nicola Willis, risks around the Fed becoming less independent when President Donald Trump appoints a new Chairman, what climate change means for the Reserve Bank, her thoughts on a potential central bank digital currency, and more.

*You can find all episodes of the Of Interest podcast here.​