RBNZ Stands Pat and Sees Possible Official Cash Rate Peak of 5.50%

Highlights

• This morning, the RBNZ left the Official Cash Rate unchanged at 5.50%.
• There were no surprises after hiking rates by 75 basis points in April and May,
• However, the RBNZ Rate Statement suggested a possible end to the monetary policy tightening cycle.

It was a relatively quiet start to the mid-week session on the Asian economic calendar. While machinery orders from Japan drew interest this morning, central banks remained the focal point, with the RBNZ in the spotlight.

This morning, the RBNZ left the Official Cash Rate (OCR) unchanged at 5.50%, aligned with market expectations. The RBNZ hold on the OCR left investors to consider the RBNZ Rate Statement.

Today’s decision to stand pat will provide some consumer relief, with the RBNZ having hiked interest rates by 75 basis points in April and May. However, investors would need to know whether the RBNZ considered today’s decision a pause or an end to the tightening monetary policy cycle.

Salient points from the Rate Statement included,

• The Committee is confident that with interest rates remaining at a restrictive level, consumer price inflation will return to within the target range of 1% – 3%.
• While monetary conditions impact spending and reduce inflationary pressures, inflation remains too high.
• The RBNZ needs spending to remain subdued and for capacity constraints to ease further.
• While core inflation remains a concern, the RBNZ noted that monetary policy reached a more restrictive level earlier than in many other countries.
• Economic data indicates that monetary policy is constraining spending, leaving economic growth weak in the near term.
• Employment remains above its maximum sustainable level. However, recent indicators point to an easing in labor market conditions.

The Rate Statement spoke of maintaining monetary policy at a restrictive level and the effects of restrictive monetary policy on the economy and inflation, suggesting that the RBNZ may have reached the end of its monetary policy tightening cycle.

NZD/USD Reaction to the RBNZ Interest Rate Decision

Before the RBNZ interest rate decision, the NZD/USD fell to a pre-announcement low of $0.61902 before rising to a high of $0.62267.

However, in response to the RBNZ Rate Statement, the Kiwi dollar rose to a post-Statement high of $0.62240 before falling to a low of $0.62015.

This morning, the NZD/USD was up 0.26% to $0.62139.

Up Next

There are no euro area economic indicators to consider ahead of the all-important US CPI Report. The US CPI Report will be in focus this afternoon. Sticky inflation would fuel bets on a September interest rate hike. This week, less hawkish Fed commentary weighed on the greenback. Economists forecast the US annual inflation rate to soften from 4.0% to 3.1%.

However, beyond the CPI Report, investors should continue to monitor central bank commentary. FOMC Members Neil Kashkari and Raphael Bostic speak after the CPI Report. Despite the less hawkish Fed messaging ahead of the CPI Report, sentiment toward Fed policy remained steady.

ECB Chief Economist Philip Lane is on the ECB calendar to speak and will garner plenty of attention.