US President Donald Trump may not be imposing tariffs on New Zealand imports, but the ripple effects of his trade policies are being felt across the globe. Economists in New Zealand are warning of potential impacts on interest rates due to Trump’s tariffs on Mexico, Canada, and China. While the immediate impact might not be direct, the indirect consequences could lead to higher interest rates in New Zealand than initially anticipated.
Council of Trade Unions economist and policy director Craig Renney foresees a 50 basis point cut in the next Reserve Bank monetary policy update. However, he cautions that the tariff measures could have a broader impact on the economy. The difference between the Federal Reserve rate and the New Zealand cash rate plays a crucial role in determining mortgage rates in the country. This discrepancy might result in pressure on the rates offered by banks to home loan borrowers, even if the OCR in New Zealand were to fall. Renney highlights the potential disconnect between the Reserve Bank’s efforts to lower borrowing costs and the actual impact on domestic mortgage rates.
Looking ahead, Westpac chief economist Kelly Eckhold acknowledges the likelihood of tariffs affecting interest rates. The upward pressure on long-term interest rates and US inflation could spill over to New Zealand rates. Eckhold emphasizes the complexities involved in predicting the consequences of tariffs, especially considering the global implications on trade and currency exchange rates. The exchange rate dynamics between the US dollar and New Zealand dollar are expected to shift, impacting exporters and households differently.
Infometrics chief forecaster Gareth Kiernan delves into the nuanced effects of higher inflation in the US on other countries. The balance between weaker global demand and increased input costs due to tariffs will determine the overall inflation outlook for different economies. Kiernan emphasizes the potential timeline for these impacts, suggesting that changes may not be immediate but could manifest in the latter half of the year. The implications for households and businesses, especially in provincial regions, are complex and could shape the economic landscape in the coming months.
As experts analyze the potential ramifications of Trump’s trade policies on New Zealand, the uncertainty surrounding interest rates and inflation looms large. The intricate interplay between global trade dynamics, currency fluctuations, and domestic economic indicators underscores the need for a nuanced approach to monetary policy. While the immediate impact might not be drastic, the long-term implications on borrowing costs, inflation, and economic growth require careful monitoring and strategic decision-making.
In conclusion, the effects of tariffs and trade wars are far-reaching, affecting economies in ways that are not immediately apparent. As New Zealand navigates the challenges posed by external factors, resilience, adaptability, and foresight will be key in mitigating risks and seizing opportunities for sustainable growth. Stay informed with our daily newsletter, Ngā Pitopito Kōrero, for curated insights and updates on the evolving economic landscape.