Bank of New Zealand with another rate hike

The Reserve Bank of New Zealand today raised its main interest rate by 0.5 percentage points to 3%, a level is last seen seven years ago. It was the fourth 50-basis point hike in the current cycle, which may make the RBNZ one of the stronger monetary tightening central banks to bring down inflation. 

Today's hike was in line with market expectations. Some policymakers believe that inflation may soon begin to stabilize or even start to decline through lower fuel prices and transportation prices. However, inflation may not return to the New Zealand central bank's target until mid-2024.

Thus, further monetary tightening may be required, with its end expected in the first quarter of 2023 - according to a statement issued to today's decision. As a result, the RBNZ may raise the main interest rate by about 3.75 percentage points throughout the cycle, to 4%, from the record low of 0.25% that occurred in 2021. Inflation in New Zealand rose to 7.3% y/y in the second quarter of 2022, up from 6.9% in the previous period. This was the highest figure since the second quarter of 1990.

The NZD/USD exchange rate seemed to react relatively calmly to the above decision, as it was in line with the market consensus. At 07:30 GMT+3 on the Conotoxia MT5 platform, the NZD/USD exchange rate rose by 0.25% to 0.6360. As a result, at this hour, of the major currencies against the US dollar, it is the NZD that seems to have gained the most. Since the beginning of the month, the NZD has gained 1.10% to the USD, which may make New Zealand's currency the strongest of the world's major currencies.