As expected, the Reserve Bank of New Zealand The Reserve Bank of New Zealand (RBNZ) kept its policy rate at 5.50% for the eighth straight meeting in May.

What traders did not expect was for the central bank to share this.”The committee discussed the possibility of increasing OCR at this meeting“After looking at”Persistent domestic inflation, weak productivity growth, and uncertainty about the pace of wage normalization and price-setting behaviour.“

Link to the Reserve Bank of New Zealand's May 2024 policy decision press release

The central bank's May 2024 forecasts highlighted greater support for its hawkish biases:

• Official cash price It is set to peak at 5.7% in December compared to 5.6% forecast for February
• We still won't see Reducing the interest rate Until the first quarter of 2025
• Inflation expectations They were revised higher for Q2 (3.2% to 3.6%), Q3 (2.6% to 3.0%), and Q4 (2.5% to 2.9%) this year and all quarters in 2025.
• Inflation will not arrive Reserve Bank of New Zealand target 2% Until the second quarter of 2026, following the fourth quarter of 2025 forecast in February
• Growth forecasts It was revised downward for all quarters in 2024 and 2025

Link to the Reserve Bank of New Zealand's economic forecasts for May 2024

The Reserve Bank of New Zealand also noted in its statement that labor market pressures have eased as net internal migration has helped supply while businesses have been more cautious in hiring.

Weak capacity pressures and a loosening labor market also reduce domestic inflation, but their impact may be limited because this decline is mitigated by price increases in sectors that are less sensitive to interest rates, such as housing rents, insurance costs, and prices for other local services.

Currently, members of the Reserve Bank of New Zealand have agreed that interest rates “We may have to stay at a restrictive level for longer than expected in the February monetary policy statement.“

Market reactions

New Zealand dollar against major currencies: 5 minutes

Expectations of “tightening stability” from the Reserve Bank of New Zealand pushed the New Zealand dollar slightly higher shortly before the report.

The New Zealand dollar then rose across the board when the central bank's revised forecasts reflected higher interest rates, higher inflation and a “higher for longer” interest rate environment.

However, the upward rally did not last, as the New Zealand dollar quickly gave up part of its gains in the next hour or so after the release.

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