After the July policy meeting conducted on Wednesday, the Reserve Bank of New Zealand (RBNZ) board members decided to keep the Official Cash Rate (OCR) steady at 5.50%.
The decision was widely in line with the market expectations.
Summary of the RBNZ Monetary Policy Statement (MPS)
Committee agreed that monetary policy will need to remain restrictive.
The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.
Some domestically generated price pressures remain strong.
But there are signs inflation persistence will ease in line with the fall in capacity pressures and business pricing intentions.
Current and expected govt spending will restrain overall spending in economy.
The level of economic activity, including business and consumer investment spending and investment intentions, is consistent with the restrictive monetary stance.
The positive impact of the pending tax cuts on private spending is less certain.
Minutes of the RBNZ interest rate meeting
Committee agreed that monetary policy will need to remain restrictive.
Members noted a risk that domestically driven inflation could be more persistent in the near term.
Headline inflation is expected to return to within the 1 to 3 percent target range in the second half of this year.
NZD/USD reaction to the RBNZ interest rate decision
The New Zealand Dollar came under intense selling pressure in an immediate reaction to the RBNZ ’s hold decision. The NZD/USD pair currently trades around 0.6100, down 0.40% on the day.
New Zealand Dollar PRICE Today
The table below shows the percentage change of New Zealand Dollar (NZD) against listed major currencies today. New Zealand Dollar was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.00% | -0.03% | 0.13% | -0.03% | 0.03% | 0.46% | 0.05% | |
| EUR | 0.00% | 0.00% | 0.16% | 0.00% | 0.02% | 0.43% | 0.03% | |
| GBP | 0.03% | -0.00% | 0.14% | 0.01% | 0.02% | 0.43% | 0.02% | |
| JPY | -0.13% | -0.16% | -0.14% | -0.13% | -0.11% | 0.27% | -0.13% | |
| CAD | 0.03% | 0.00% | -0.01% | 0.13% | 0.05% | 0.45% | 0.02% | |
| AUD | -0.03% | -0.02% | -0.02% | 0.11% | -0.05% | 0.41% | -0.02% | |
| NZD | -0.46% | -0.43% | -0.43% | -0.27% | -0.45% | -0.41% | -0.42% | |
| CHF | -0.05% | -0.03% | -0.02% | 0.13% | -0.02% | 0.02% | 0.42% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the New Zealand Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent NZD (base)/USD (quote).
This section below was published at 21:15 GMT on Tuesday as a preview of the Reserve Bank of New Zealand (RBNZ) policy announcements.
- The Reserve Bank of New Zealand is expected to keep rates on hold at 5.50% on Wednesday.
- Upside risks to inflation to offset economic concerns, prompting RBNZ to delay any dovish shifts.
- The New Zealand Dollar gears up for intense volatility on the RBNZ policy announcements.
Following its July monetary policy meeting on Wednesday, the Reserve Bank of New Zealand (RBNZ) is set to hold the Official Cash Rate (OCR) at 5.50%, extending the pause into an eighth meeting in a row.
It’s expected to be a straightforward event, with no press conference from RBNZ Governor Adrian Orr and the release of updated economic projections. However, any changes to the RBNZ’s communication could spark a big reaction in the New Zealand Dollar (NZD).
What to expect from the RBNZ interest rate decision?
With discouraging economic performance alongside the persistence of inflation risks, a rates on-hold decision by the RBNZ is widely anticipated by market participants. Therefore, they will look for fresh hints on the timing of the dovish policy pivot in the central bank’s Monetary Policy Statement (MPS).
New Zealand’s annual Consumer Price Index (CPI) increased by 4% in the first quarter, according to data released by Stats NZ, following a 4.7% growth in the 12 months to the December 2023 quarter.
Even though there was progress in disinflation, the non-tradable inflation remained a cause for concern. Non-tradeable inflation was 5.8% in the year to the March quarter, a tad lower than the 5.9% figure seen in the final quarter of 2023.
Meanwhile, Stats NZ showed on June 19 a 0.2% increase in GDP in the first quarter, breaking a streak of quarterly GDP declines that had led to the country’s recession in the second half of 2023.
These data sets are likely to support potential delays in the dovish changes to the policy statement’s language, despite some analysts arguing against them amidst declining domestic consumer confidence and the deepening contraction in the manufacturing and services sectors.
ANZ – Roy Morgan New Zealand Consumer Confidence fell to 83.0 in June from the previous month’s 84.9, sticking close to multi-year lows in the sentiment index. The Business NZ Performance of Services Index (PSI) dropped to 43.0 in May from April’s 46.6 while the Business NZ Performance of Manufacturing Index (PMI) contracted to 47.2 in May, following a 48.8 figure in April.
Previewing the RBNZ policy announcement, analysts at TD Securities noted: “While there are signs of cracks in the economy (e.g., labor market easing, contractionary PMIs), we don’t think the RBNZ is in any urgency to ease given the upside risks to inflation, especially from services.”
How will the RBNZ interest decision impact the New Zealand Dollar?
The NZD/USD pair is on the front foot heading into the RBNZ showdown on Wednesday, in the aftermath of the US Dollar (USD) demise induced by Friday’s US labor market data for June. The downward revisions to the April and May employment data prompted investors to ramp up bets that the US Federal Reserve (Fed) will lower interest rates in September.
Furthermore, expectations that the RBNZ will refrain from making any dovish tweaks before the July 16 second-quarter inflation report, help the pair maintain its recent upswing.
“Market has more than fully priced in a November rate cut, with 60% odds of an earlier cut in October,” per BBH Analysts.
If the MPS remains wary of the upside risks to inflation, in the face of sticky non-tradeable goods and services inflation alongside the May Budget release, the Kiwi Dollar could see a fresh leg higher to the June high of 0.6222. On the other hand, NZD/USD is seen falling back toward 0.6000 should the RBNZ do away with its hawkish guidance, hinting at a policy pivot later this year.
Dhwani Mehta, FXStreet’s Senior Analyst, offers a brief technical outlook for trading the New Zealand Dollar on the RBNZ policy announcements: “The NZD/USD pair is consolidating the previous week’s recovery, deriving strength from a bullish 14-day Relative Strength Index (RSI) on the daily time frame.”
“The next bullish target for the Kiwi is seen at the June high of 0.6222, above which the 0.6250 psychological level will challenged. Further up, the 0.6300 threshold will be in sight. Alternatively, a failure to defend the confluence of 100-day and 200-day SMAs at 0.6070 could open the downside toward the 0.6000 level,” Dhwani adds.
Economic Indicator
RBNZ Monetary Policy Statement
At each of the Reserve Bank of New Zealand (RBNZ) seven meetings, the RBNZ’s Monetary Policy Committee (MPC) releases a post-meeting statement explaining its policy decision. The statement may influence the volatility of the New Zealand Dollar (NZD) and determine a short-term positive or negative trend. A hawkish view is considered bullish for NZD, whereas a dovish view is considered bearish.
RBNZ FAQs
The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.
Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.
In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.
Source: New Zealand’s RBNZ holds rate at 5.50% in July
