RBNZ expected to keep rate unchanged

After its monetary policy meeting on Wednesday, the Reserve Bank of New Zealand is anticipated to keep the Official Cash Rate (OCR) at 5.50% for the sixth consecutive meeting. Notwithstanding the fact that Governor Adrian Orr’s news conference was not held and that revised economic estimates were released, the New Zealand Dollar is set for a significant market response to the RBNZ policy pronouncements.

The RBNZ’s Monetary Policy Statement (MPS) will be keenly watched by markets as the language and tone are completely priced in for a rates-on-hold decision. “Conditional on our central economic outlook, we expect the OCR will need to remain around current levels for an extended period for the Monetary Policy Committee to meet its inflation target,” the RBNZ policy statement said after prolonging the halt in February.

Given that New Zealand is experiencing its second recession in as many months and that consumer confidence is precipitously declining, markets were not shocked by a dovish hold. Following a 0.3% contraction in the third quarter, GDP growth shrank by 0.1% in the fourth quarter of 2023. ANZ-Roy Morgan In March, New Zealand Consumer Confidence dropped to 86.4, a decrease of 8.1 points.

According to Analysts, markets are now factoring in the first rate drop by the RBNZ in August, along with a 75 bps overall easing this year. The RBNZ might, however, adhere to the language from the February MPS and hold off on changing its policy outlook until after the release of the first-quarter Consumer Price Index (CPI) report and labour market data.

The NZD/USD pair faces significant risks ahead of Wednesday’s RBNZ meeting, as the US Dollar maintains its advantage due to strong Nonfarm Payrolls data that caused investors to reduce their expectations for a June US Federal Reserve (Fed) rate cut.