NZ central bank holds rates, signals higher hurdle to further hikes; kiwi tumbles
By Lucy Craymer
WELLINGTON (Reuters) -New Zealand's central bank held rates steady on Wednesday as policymakers were more confident that past hikes were working to bring down inflation as desired, sending the local dollar skidding as markets pared bets of any further tightening.
The Reserve Bank of New Zealand (RBNZ) kept the cash rate at a 15-year high at 5.5% and said policy needs to remain restrictive to bring inflation to heel, but stopped short of suggesting further increases were on the cards.
«Interest rates are constraining economic activity and reducing inflationary pressure as required,» the central bank said in a statement.
The decision was in line with all 27 economists polled by Reuters, but the less hawkish-than-expected policy stance sent the New Zealand dollar sliding 0.5% to a three-week low of $0.5878.
Bank bill futures recouped all their early losses to turn higher as the market pared back the chance of a hike in November to 45% from 55% earlier.
«We see this statement as more dovish than our expectations,» said Westpac NZ chief economist Kelly Eckhold.
«We anticipated the RBNZ would craft a statement that broadly endorsed current market pricing for around a 50/50 chance of a 25 bp rate rise in November. This statement suggests that view was too hawkish.»
RESTRICTIVE POLICY
The RBNZ said the monetary committee agreed that interest rates will need to remain at a restrictive level for the foreseeable future to ensure consumer price inflation returns to its 1% to 3% target range.
Yet, while the bank cautioned of a near-term risk that activity and inflation do not slow as much as needed, policymakers noted that the economic outlook remains subdued and that spending growth was expected to decline
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