In the Asian session tomorrow morning, Wednesday, the Reserve Bank of New Zealand will announce its monetary policy of setting interest rates and monetary policy in the coming period, as expectations indicate that the bank will raise interest rates for the third meeting in a row by a quarter of a percentage point or 25 basis points to reach 1% After it was raised at the October and November 2021 meetings.
The New Zealand Bank is considered one of the first banks to raise interest rates among the major central banks in the world, as high inflation prices pressured the central bank to resort to easing pressures on the New Zealand economy. Inflation levels in the last reading approached the bank’s target by weakness, reaching 5.9%, while the bank’s target is stable at 1-3%.
Markets and investors priced seven increases in interest rates during the whole of the current year, which requires a quarter point increase at each meeting during the year, as the markets see interest rates at 2.5% by the end of the year.
There is also a possibility that the bank will resort to raising interest rates by half a point or 50 basis points in Wednesday’s meeting, especially with the rise in inflationary pressures in New Zealand, where the markets are pricing in about 20% that the bank will raise interest rates by half a point.
The bank will also update its quarterly forecasts for growth, inflation and future interest rates, as the bank is expected to raise its expectations for future interest rates. What is agreed upon, then, is that the bank will raise interest rates, but the question is whether it will continue to raise it at the current pace, the most conservative 0.25%, or will it raise it by 0.50% this time, and based on the size of the hike, the movements of the New Zealand dollar will be. The New Zealand dollar is trading at 0.6740 levels against the US dollar, with an increase of 45 points before the meeting.
Expected movement scenarios A quarter point hike from the Reserve Bank of New Zealand was priced at the current prices, and therefore it is not unlikely that we will witness regressions when the decision is announced, especially if
the interest rate decision contains a negative outlook (this scenario is widely expected).
A 50 basis point hike will support the NZD’s strong appreciation because it is a highly unexpected move in the markets (20% expected).
Failure to raise interest rates from the Reserve Bank of New Zealand will cause sales of the New Zealand dollar (unexpected until the moment).
05/11/2024
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