New Zealand Central Bank Maintains Rates, But Warns Inflation Still Too High - 22 May 2024

New Zealand’s central bank kept its official cash rate at 5.50% on Wednesday but said that inflation was too high and that a rate hike was on the table. The New Zealand dollar climbed sharply against the US dollar but has pared much of those gains.

The Reserve Bank of New Zealand (RBNZ) decision to hold rates was widely expected. This marks a seventh straight time that the RBNZ has maintained interest rates. What was somewhat of a surprise was the hawkish tone of the rate statement, which provided a boost to the New Zealand dollar earlier today.

The Monetary Policy Committee (MPC) discussed the possibility of a rate hike and the rate statement noted that rates may have to remain "at a restrictive level for longer than anticipated in the February Monetary Policy Statement to ensure the inflation target is met". 

This language was surprisingly blunt and expressed deep concern about the slow decline in inflation, in particular services inflation. New Zealand’s inflation rate dropped to 4.0% in the first quarter, down from 4.6% in the fourth quarter of 2023. This was higher than the RBNZ’s forecast of 3.8%, which appears to have been too optimistic. The RBNZ’s steep rate-tightening cycle has slashed inflation but it remains at double the midpoint of the 1-3% target range.

RBNZ: High inflation Could Mean a Rate Hike 

As a result of the hotter-than-expected inflation data, the central bank now expects that the consumer price index (CPI) will not fall back to the target range of 1-3% until the fourth quarter, compared to the third quarter in the previous forecast.

The RBNZ has pushed back its forecast of when it expects to lower rates from the second quarter of 2025 until the third quarter. More importantly, the central bank has raised the possibility of an actual rate hike to 60% by the end of the year. The markets however, still expect the RBNZ to start lowering rates and have priced in at least one rate cut by the end of the year.

New Zealand Dollar and Stock Market Higher after RBNZ Announcement 

Today’s rate meeting dampened any hopes of a rate cut in the near-term and sent the NZD/USD currency pair to a daily high of$ 0.6152, up 0.80%, following the rate announcement. The New Zealand dollar has pared much of these gains and is currently trading at 0.6116, up 0.41% on the day.

The NZX 50, New Zealand’s main stock index, also posted gains today and gained 56.29 points (0.48%), closing at 11,732.28.

Ready to trade our daily Forex analysis? Here's a list of the brokers for forex trading in New Zealand to choose from. 



Industry Responses: Strategies For Overcoming Regulatory Challenges In US Bitcoin ETF Approval

The journey towards the approval of Bitcoin Exchange-Traded Funds (ETFs) in the United States has been fraught with regu... Read more

Navigating Market Volatility: Assessing The Impact Of A Strengthening Dollar On US Stocks

In recent months, US stock markets have experienced a notable rally, with indices reaching new highs. However, amidst th... Read more

Forex Today: Feds Kashkari Suggests Delaying Rate Cut To December - 17 June 2024

Fed’s Kashkari Males Implicitly Hawkish Statement; Fears Grow of Far-Right Victory in France; Indonesian Rupiah at 4-Y... Read more

US Inflation Dips Unexpectedly To 3.3% In May, Fed Remains Cautious - 13 June 2024

There was good news on the inflation front, as inflation decelerated in May and was lower than anticipated. Read more

Forex Today: Lower US Inflation Sends Stocks Soaring Despite Cautious Fed - 13 June 2024

US inflation data showed no increases in prices over the past month, leading to an expected fall in annualized CPI which... Read more

Forex Today: US Stock Indices Close On Record Highs Ahead Of CPI, FOMC - 11 June 2024

US Stock Market Continues Advance, European Markets Also Bullish; Gold Near 2-Month Low; Euro Finds Support; Indonesian ... Read more