Sameera Casmod | sameerac@radioislam.co.za
28 November 2024 | 09:03 CAT
-minute read

RBNZ lowers cash rate, NZ$ spikes

The Reserve Bank of New Zealand decreased its cash rate by 50 basis points to 4.25% yesterday, in a move many economists had been expecting. The 4,25% interest rate banks will now pay to borrow funds from other banks in the money market overnight is at its lowest since November 2022.

The rate cut conforms to RBNZ trends, which show a 50-bp cut last month and another 50-bp slash as early as February 2025. The rate cuts, which were lower than the expected cut of 75 bp, are expected to positively affect the NZ economy, leading to a surprise reaction from the NZD, which was up 0,9% against the USD.

“This rate cut is less aggressive than we anticipated, so this also helps the New Zealand dollar. Another thing that needs to be taken into consideration is that the history of rate cuts when it comes to the Reserve Bank of New Zealand it came really as expected and as forecasted. This gives us more trust in their policy and supports the New Zealand dollar,” market analyst Farah Mourad said during this week’s Asia-Pacific Report on Radio Islam International.

China’s production continues to drop despite stimulus measures

A World Bank report published last month shows China’s stimulus is inadequate to halt its slowing GDP growth. Despite stimulus measures including interest rate cuts, lower mortgage rates for existing loans, a reduction in down payments for second homes, and consumption vouchers, the country’s economy is struggling across many sectors.

China’s manufacturing sector has been declining since April 2023, with a 27,1% decrease in industrial profits in September this year. Additionally, China’s Q3 GDP hit its weakest pace since early 2023 and is facing deflationary pressure.

“Production dropped by over 10% in October. This is a series of decreases that we saw in production for the last three months. The worst was in September. It was about 27%,” Mourad said.

The decrease indicates either that the stimulus needs more time to yield results or that China needs an entirely different approach.

Despite the decrease, it’s not all bad news for China, with the technology industry and foreign investment showing positive signs.

Potential effects of imposing tariffs on China

President-elect Donald Trump says he will impose new tariffs on China, Mexico and Canada as soon as he is sworn in on 20 January 2025. For China, an additional 10% tariff will be introduced in an attempt to force the country to clamp down on fentanyl smuggling.

The proposed tariff is likely to affect inflation, Mourad observes.

“The first 10% during Donald Trump and Biden, it didn’t really affect inflation that much, but I believe that another 10%, given that China sent over 20% of automobile parts to the US, it would definitely create a spike of inflation, and it would affect China,” Mourad said.

Analysts believe that the plan is a strategic move to initiate negotiations with China to reassess trading deals

Listen to the Asia Pacific Report on Sabaahul Muslim with Moulana Habib Bobat.