Members of the Monetary Policy Committee of the Reserve Bank of New Zealand, led by Adrian Orr, will meet tomorrow morning, Wednesday, in the Asian session, to discuss monetary policy developments and interest rates for the coming period, as markets expect an increase in interest rates by 50 basis points to reach 2% at the highest interest level since 2016 after raising it by the same percentage in April meeting.

The New Zealand Bank, as is the case with the rest of the central banks around the world, is struggling with global inflation rises and is rushing to limit its rise, as inflation in New Zealand reached 6.9% on an annual basis at its last reading, 30 basis points higher than the committee’s expectations for the peak inflation in Ivory in February.

Inflation and its largest rise since 1990 gives a strong argument for the bank to continue to tighten monetary policy. Consequently, the bank’s update of the expectations of interest rates, inflation, unemployment and periodic economic growth, which is issued every three months, will be of greater importance and impact on the movements of the New Zealand dollar, especially since the markets expect the bank to raise His expectations for inflation and interest levels by the end of the year and to reduce his expectations for growth.

The last update of the bank’s quarterly forecasts last February, members saw that interest rates will not exceed 2% until the end of this year, but now it may reach 2% before the bank’s four meetings remaining for the end of the year, and therefore the bank is expected to raise it to 3% by the end of this year.

Expected movement scenarios

The movements of the New Zealand dollar will be based on the bank’s decision first on the rate of increase, and will it be by 50 basis points as expected by the markets (the New Zealand dollar will rise with this percentage temporarily) and the movement will be based on the tone of the press conference and the committee’s expectations for interest rates, growth and inflation

The bank’s decline and interest rate hike by 25 basis points will directly negatively affect the movements of the New Zealand dollar before the market reviews the details of the press conference and the committee’s expectations for interest rates, inflation and economic growth.

The possibility that the bank will raise interest rates by 75 basis points is very small, but it is significant. If the bank surprised the markets and raised them by 75 basis points, the New Zealand dollar will move strongly against all currencies.