The Reserve Bank of New Zealand (RBNZ) board members decided to maintain the Official Cash Rate (OCR) at a record low of 0.25% in August, as against market expectations of a 25bps hike.

Additional takeaways

To keep the OCR unchanged at this meeting given the heightened uncertainty with the country in a lockdown.

The least regrets policy stance is to further reduce the level of monetary stimulus so as to anchor inflation and employment expectations.

Confident of meeting their inflation and employment remit with less need for the existing level of monetary stimulus.

Remains alert to the supply disruptions that COVID-19 can create, and the dampening effect this can have on confidence.

House prices are also above their sustainable level, heightening the risk of a price correction as supply increases.

Capacity pressures are now evident in the economy, particularly in the labor market.

Near-term consumer price inflation is expected to rise above target range before returning towards the 2 percent midpoint around mid-2022.

Sees official cash rate at 0.59% in December 2021 (pvs 0.25%).

Sees official cash rate at 2.14% in September 2024.

Sees official cash rate at 1.38% in September 2022 (pvs 0.49%).

Sees TWI NZD at around 74.4% in September 2022 (pvs 74.8%).

Sees annual CPI 2.2% by September 2022 (pvs 1.6%).

Sees official cash rate at 1.62% in December 2022 (pvs 0.67%).

NZD/USD reaction 

The NZD/USD pair took a sharp U-turn and slid nearly 70-pips in a knee-jerk reaction to the dovish RBNZ decision, now trading at multi-month lows of 0.6870, down 0.69% on the day.

About RBNZ Interest Rate Decision

RBNZ Interest Rate Decision is announced by the Reserve Bank of New Zealand. If the RBNZ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the NZD.

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