The Reserve Bank of New Zealand has raised interest rates again, reaffirming its dovish sentiment

A year’s rise

The Reserve Bank of New Zealand was the first major central bank to raise interest rates, exactly one year ago (in October 2021), beating the bank, whose hike came two months later.

Today it raised rates by 50 basis points, fixed the official cash rate at 3.5% and The highest level since April 2015. It was the eighth consecutive move of this magnitude and the eighth consecutive rise overall.

The bank is in its most intense tightening cycle since the policy rate was introduced in 1999, rising 325 basis points after last year’s hike.

Aggressive posture

Given high interest rates and the adverse impact they often have on the economy and their resilience, it is not unreasonable for the authorities to soften their stance. A day earlier, their Australian counterparts saw the RBA raise rates by just 0.25%, slowing the pace of its tightening cycle.

However, RBNZ policymakers showed no sign of backing down **, but even discussed the possibility of an even bigger 75 basis point move, as meeting minutes showed. In addition, they considered it perfect “Monetary conditions continue to tighten at pace”.

Already in August, the central bank upgraded its forecasts for the official interest rate (OCR), which will peak at 4.1% next year** and expect it to remain at this level until 2023, increasing by 50 and 75 basis points. points. The central bank has one more monetary policy meeting this year and the first in 2023 is expected in February.

High Inflation & Resilient Economy

As the Consumer Price Index (CPI) rose 7.3% (year-on-year) in the second quarter, the rise in inflation did not leave much room for a slowdown. The highest level in thirty-two years. In its August forecast, the bank considered the level to be a maximum, but in any case, expects it to be higher next year.

The panel commented today on the Kiwi’s depreciation, indicating that if it continues, it will make sense. “Higher Upside Risk to Inflation on Forecast Horizon”.

As far as the labor market is concerned, the committee considered it “Still too tight”, the unemployment rate in the second quarter was 3.3%, just above the historic low of 3.2%. However, the RBNZ has raised its forecasts and is ahead of 4% in 2023 and 5% in 2025.

Officials also acknowledged the recent recovery in gross domestic product, which grew at a healthy 1.7% in the second quarter (quarter-on-quarter) after contracting 0.2% in the first quarter, but the bank expects much lower growth rates. Decline in coming quarters.

Overall, the economy has shown resilience, allowing the central bank to continue its aggressive monetary tightening, but the first warning signs are here and it remains to be seen when it will ease.

reaction NZD/USD

Last week the pair fell to its lowest level since April 2020, its seventh straight loss, dominated by risk aversion and the US dollar. The greenback was later reduced, allowing NZD/USD Get some rest.

Today’s poor RBNZ decision lifted the pair early. However, the move was constrained by the 38.2% Fibonacci high and low in September and gains were quickly erased.