Breaking: RBNZ raises rates by 50 bps to 5.25% in April, hawkish surprise

The Reserve Bank of New Zealand (RBNZ) board members decided to raise the official cash rate (OCR) by 50 basis points (bps) from 4.75% to 5.25% at the April monetary policy meeting. The rate hike decision surpassed market expectations.

Summary of the statement

OCR needs to increase.

The committee agreed that maintaining the current level of lending rates for households and businesses is necessary to achieve this.

Committee agreed that the ocr needs to be at a level that will reduce inflation and inflation expectations to within the target range over the medium term.

Market reaction

In an immediate reaction to the RBNZ announcement, NZD/USD spiked nearly 75 pips to 0.6378 highs on the hawkish RBNZ surprise before reversing sharply to 0.6348, where it now wavers. The pair is up 0.62% on the day.

Why the RBNZ decision matters to traders?

The Reserve Bank of New Zealand (RBNZ) holds monetary policy meetings seven times a year, announcing their decision on interest rates and the economic assessments that influenced their decision. The central bank offers clues on the economic outlook and future policy path, which are of high relevance for the NZD valuation. Positive economic developments and an upbeat outlook could lead the RBNZ to tighten the policy by hiking interest rates, which tends to be NZD bullish.