RBNZ’s Hawkesby: Need to tighten conditions past neutral of 2%

The Reserve Bank of New Zealand General Manager Christian Hawkesby said, on Monday, that the central bank needs to tighten conditions past neutral of 2% and reduce stimulus.

Hawkesby forecasts a period of subdued consumption. He also said the risk of a recession is a possibility. The NZD was boosted by the RBNZ’s hawkish statement when it raised rates by 50bp to 2%, indicating more hikes to come.

The NZD is a bit stronger this morning, but it looks more like currency at the upper end of trading ranges than a currency on the verge of a major breakout.

Earlier on the day, the pair came within the scope of printing fresh highs for the month as recent downside in the US dollar extended on Monday, reaching into the upper 0.6550s before backing off to current levels in the 0.6530s. That means the pair is back to trading roughly flat on the day, which isn’t too surprising given a lack of trading volumes amid US market closures for the Memorial Day public holiday. Comments from the chief economist at the RBNZ on Monday, who cautioned that the bank’s recently unveiled hawkish rate guidance could be tempered if the economy underperforms expectations, were largely ignored.