In a mid-December column on the ABC, an observer weighs the Reserve Bank of Australia's decision to cut rates against the warning that a rise in prices is returning. The author looks across the Tasman to New Zealand, whose central bank pushed rates high and early and now finds its economy hollowed by emigration, joblessness and falling house values. The comparison suggests that a gentler path, one that avoided recession, was not a failure but a rare achievement. Whether that judgment holds will depend on what inflation does in the year ahead.
What Australia Can Learn from New Zealand's Rate Hike Experiment
About 70,000 New Zealanders left the country in the past year, and over 12% of September quarter property sales were struck below purchase price.
Brake so hard you lock the wheels and leave the road
Mark
Why does a column about Australian interest rates spend so much time in Wellington?
Mimi
Because New Zealand did what the critics are now asking for. It hiked early, reached 5.5 per cent by June 2023, and held there a year. Australia peaked at 4.35 per cent. So there are two outcomes to compare.
Mark
And how do they compare?
Mimi
New Zealand has had unemployment of 5.3 per cent, about 70,000 citizens leaving in a year, and falling house prices. More than 12 per cent of September quarter sales were at a loss.
Luke
Careful, though. This is an opinion column. Those figures are cited, but the claim that the hikes caused all of it is the author's argument, not something the numbers prove on their own.
Mimi
Fair. The column itself points to public service lay-offs and government cost cutting in Wellington, which are separate from the central bank.
Mark
What about the Australian side? Is inflation really returning?
Luke
The column reports critics saying so, but gives no current inflation figure for Australia. That's a gap. We only know inflation fell from 7.7 per cent to near the 2 to 3 per cent band when cuts began.
Mimi
And New Zealand's inflation is still 3 per cent despite all that pain, which is the author's point.
Mark
Why did Australia avoid recession, according to the piece?
Mimi
Two things: government spending kept people employed and paying mortgages, and the RBA limited how hard it hiked.
Luke
Both are the author's explanation. It's plausible, but the column doesn't test it, and whether inflation picks up next year is still unknown.
O Pulso
- Critics insist the RBA should never have cut rates, warning that inflation is stirring again while supply lags behind demand.
- New Zealand's 5.5 per cent peak has left the economy stalling, with roughly 70,000 people leaving in a single year.
- Unemployment in New Zealand sits at 5.3 per cent while property sales are closing below purchase price in more than one in eight cases.
- The RBA is steering between its mandates, refusing to force a recession and treating current market jitters as noise rather than a signal to reverse course.
In a mid-December column on the ABC, an observer weighs the Reserve Bank of Australia's decision to cut rates against the warning that a rise in prices is returning. The author looks across the Tasman to New Zealand, whose central bank pushed rates high and early and now finds its economy hollowed by emigration, joblessness and falling house values. The comparison suggests that a gentler path, one that avoided recession, was not a failure but a rare achievement. Whether that judgment holds will depend on what inflation does in the year ahead.
Wellington, in its cold southerly moods, holds the mood of a country that has spent three years under restraint. Empty shopfronts, public service cuts and a housing market where prices have actually fallen tell a story of economic strain that stretches back to a central bank that moved faster and harder than most.
Across the Tasman, an ABC columnist reads that story as a warning. Critics in Australia argue the Reserve Bank should never have started cutting, pointing to fears that inflation is re-emerging. The column finds this hard to sustain, since headline inflation has already fallen from its 7.7 per cent peak to near the target band, a sign that earlier hikes did their work.
New Zealand, the first to target inflation and the first to raise rates after COVID, took its rate to 5.5 per cent and held it there. The results are visible in the numbers: about 70,000 people left in a year, most bound for Australia, and unemployment has reached 5.3 per cent. The central bank has since cut its rate to 2.25 per cent in what the column calls a desperate attempt to restart growth, while inflation stubbornly remains at 3 per cent.
Australia, by contrast, has avoided recession this time, something that looked nearly impossible. The column credits government spending that kept people employed and kept mortgages serviced, along with a restrained path of hikes. Whether inflation returns next year may decide whether the RBA acts again, but the author argues it should not be spooked by the shadows now unsettling money markets.
Wellington is a city of sharp contrasts. On a still day the harbour waterfront is among the most inviting in the world, with views running across Cook Strait. Then the cold southerly comes up the harbour and through the city centre, and the mood flips. For the past three years the capital has been through a different kind of weather: empty shopfronts in a hollowed-out retail centre, public service lay-offs as the government cuts costs, and a housing market that is one of the few in New Zealand where prices have fallen.
That city is the backdrop for an ABC opinion column, published in mid-December 2025, that uses New Zealand as a test case in an Australian argument. The Reserve Bank of Australia's rate-cutting cycle is over, in the view of most economists and the traders who bet on where rates go. A small group of critics goes further. They say the RBA should never have started cutting, let alone delivered three cuts this year, because inflation is re-emerging and supply is struggling to keep pace with demand. In their telling, the RBA never went far enough when prices surged across the developed world in 2023.
The column finds that case hard to make even in hindsight. Headline inflation had fallen from a peak of 7.7 per cent to close to the RBA's 2 to 3 per cent target band when the cuts began early this year. The author reads that as proof the earlier hikes were highly restrictive. The column also notes that the RBA now operates under two mandates agreed with the federal government, keeping inflation in check and maintaining full employment. That rules out engineering a recession just to claim victory over inflation. Until recently it had a third, to maximise the economic prosperity and welfare of the Australian people.
New Zealand went the way the critics now recommend. Its central bank was the first in the world to target inflation, more than 30 years ago, and the first to start raising rates after COVID, with a hike in November 2021. While others called inflation transitory, the RBNZ pushed its rate to a 5.5 per cent peak by June 2023 and held it there for a year. The RBA never went above 4.35 per cent and was heavily criticised for not matching its peers. When the RBNZ began cutting in July last year, some Australian critics said the RBA could have been cutting by then too. The column calls that argument ridiculous: it is like braking so hard you lock the wheels and leave the road, then boasting about how fast you can accelerate back.
The results across the Tasman are laid out in numbers. The New Zealand economy has swung between recession and mild recovery for three years, and has gone backwards in three of the past five quarters. September quarter GDP figures due this week are expected to show a return to growth. In the past year about 70,000 citizens left, roughly 60 per cent of them for Australia. After returnees, the net loss was close to 50,000, many of them of working age. Even so, unemployment is 5.3 per cent, the highest in over a decade and a full percentage point above Australia's. Wages are poor and jobs scarce.
The RBNZ cut again last month, to 2.25 per cent, and has taken a full percentage point off since July in what the column calls an increasingly desperate bid to restart growth. Inflation is still stubborn at 3 per cent. Property prices keep drifting lower, with Auckland up just 2 per cent since 2023. Research group Cotality calculates that more than 12 per cent of September quarter sales were made below the purchase price, a median loss of more than NZ$50,000 (A$43,500). The column's sardonic verdict is that this is one way to improve housing affordability.
The author contrasts this with Australia, which took a decade after the 1990s downturn to get unemployment back to its prior level. By avoiding recession this time, the RBA has done something that looked nearly impossible. The column credits two factors: federal government spending that kept people employed and so kept them current on home loans, and the RBA limiting the pain of its hikes.
Three years ago New Zealand economists were largely confident that inflation was a greater evil than recession, while Australians such as Ken Henry were more cautious. Asked on 7.30 whether inflation could be tamed without a recession, Henry said that as an economist he had to believe it was possible. If inflation runs again next year, the column concedes, the RBA may have to act, but it should not be spooked by the shadows currently worrying money markets.
Citações Notáveis
As an economist, I have to believe it's possible.— Ken Henry, on whether inflation can be tamed without recession, on 7.30
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Leia o original em ABC (Australian Broadcasting Corporation) ↗
Economy & Finance