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10/07/24
166
NZD Drops After RBNZ Takes Dovish Tone
On Wednesday, the New Zealand dollar was sharply down and NZD/USD traded at about 0.6081, down 0.72% for the day in the European session.
At today’s meeting, the Reserve Bank of New Zealand kept the cash rate at 5.50%, the 8th consecutive time it has done so. Although this was not a surprise, the rate statement was unexpectedly dovish.
At the RBNZ’s previous meeting in May, policymakers forecast that the Bank would only cut interest rates in the third quarter of next year. Today’s meeting seems to indicate a substantial move away from that stance.
In sharp contrast to May’s heading of the policy statement “Official Cash Rate to Remain Restrictive,” it was “Inflation Approaching Target Range” today.
The statement said that restrictive monetary policy had reduced consumer price inflation significantly. This language was more dovish than that in the statement in May. Although the central bank acknowledged in the statement that policy would stay restrictive, it added that this may change if inflationary pressures eased, as expected.
The markets saw the statement as an indication that the RBNZ may cut rates much earlier than expected, perhaps as early as August. This has led to sharp losses for the New Zealand currency.
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