The Reserve Bank of New Zealand raised interest rates for the fifth consecutive time at its May meeting. The 50-basis point hike from 1.5 percent to 2 percent was in line with market consensus, but may have impacted the New Zealand dollar.
The RBNZ signaled that in the face of rising prices, the OCR rate will reach a higher level than previously forecast. RBNZ officials added that a larger and earlier hike reduces the risk of inflation becoming entrenched, while providing more flexibility considering a highly uncertain global economic environment. The cash rate will peak at 3.95 percent in the third quarter of 2023, much sooner than predicted in February, when the peak at 3.35 percent was expected to fall in 2024. - according to information provided for the RBNZ decision.
Bank policymakers acknowledged that New Zealand's economy remains strong on the back of a robust labor market, strong household balance sheets, continued fiscal support, good terms of trade and the easing of COVID-19 restrictions. However, they cautioned that there are strong headwinds due to global uncertainty and rising prices. Once aggregate supply and demand are more in balance, the OCR rate could return to a lower, more neutral level.
The NZD/USD pair price rose by around 0.8 percent this morning, crossing 0.6500, its highest level since the beginning of the month. Back in the first half of May, NZD/USD was at 0.6200, which was the lowest rate in two years. Thus, it can be seen that the NZD/USD May 2022 rate is trying to make a quick comeback from relatively low levels. Perhaps it is helped by the fact that in the US the market may have already largely discounted interest rate hikes, while in other parts of the world, including New Zealand, it has not yet.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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