RBNZ lifts rates for the last time this year

The Reserve Bank of New Zealand lifted the official cash rate by 75 basis points in their quarterly meeting on Wednesday this week. The statement published by the Monetary Policy Committee detailed their view that a higher cash rate was required to ensure inflation returns to within the target range.

High core inflation, unsustainable employment levels and rising near-term inflation expectations were all cited as reasons a higher cash rate is required.

The statement also included the current economic assessment and monetary policy outlook which stated that the New Zealand economy is, like other economies, expected to enter a recession in 2023. The committee believes the recession will be the result of higher interest rates.

They also noted that the recession is assumed to spread over several quarters. The official cash rate of New Zealand currently stands at 4.25% with headline inflation coming in at 7.2% and unemployment at 3.3%.

The unregulated window is closing on BNPL sector

The Treasury released a paper on Monday outlining three broad options that aim to provide a regulatory framework for the buy-now pay-later industry in Australia. The industry is currently unregulated due to an exception for certain credit types under the National Consumer Credit Protection Act.

The options outlined in the paper range from a government-industry co-regulation scheme to varying degrees of regulation under the Credit Act. The options paper is open for public consideration until the end of December, giving Australians the opportunity to weigh in on the need for regulation within the industry.

Following the release of the paper, the share prices of buy-now pay-later companies dipped over the week. Zip shares fell 4.5%, Sezzle dropped 6.67% and Block slipped 2.89%.

European Union criticised for ‘joke’ oil cap

The European Union proposed the imposition of a price cap on Russian oil this week. The EU discussed a price cap between US$65 and US$70 per barrel as a response to Russia’s invasion of Ukraine.

However, the price caps have been heavily criticised, as the range proposed is higher than Russia’s production costs meaning even with the price caps, the country may still make a profit.

Several diplomats within the European Union have argued the US$65 to US$70 per barrel range is too high and remains in line with the historical average price per barrel. The EU were due to meet on Wednesday to approve the price cap and decide the appropriate level, however, the meeting was stalled.

According to Bloomberg, the high cap may have a minimal impact on trading as Russia is currently selling its crude oil at a discount.

Slower rates await the Fed as recession looms

Growing support for tapering rates has been detailed in the Federal Open Markets Committee’s (FOMC) meetings published this week. The minutes note that a substantial majority of participants from the Committee agreed that slowing rates would likely soon be appropriate as monetary policy approached a stance that was restrictive enough to achieve the Committee’s goals of sustainable inflation at 2%.

The document also details the benefits that a slower rate hike pace would bring, such as allowing the committee to assess progress towards its goals of maximum employment and price stability, as well as a reduced risk of financial instability within the American system.

The possibility of a recession was also addressed in the meeting with FOMC staff, suggesting that risks to real economic activity are present and negatively skewed, meaning it is likely the American economy would enter a recession sometime in 2023.