In a move that caught financial markets off guard, New Zealand’s central bank decided to maintain its cash rate at 5.5%, while also adjusting its future rate peak prediction slightly downwards to 5.6%, indicating a softer approach towards monetary tightening. This decision keeps the Reserve Bank of New Zealand (RBNZ) in step with the global trend of central banks pausing or ending their aggressive rate-hiking cycles, amid changing economic conditions.
Despite some market speculations of a potential rate increase, the RBNZ’s stance was more dovish than expected, leading to a notable decline in the New Zealand dollar and a surge in bond prices. The central bank’s revised peak rate forecast, down from 5.7% to 5.6%, suggests a dialing back of its previously hawkish position, reducing the likelihood of further rate hikes in the near term.
The RBNZ’s announcement highlighted a shift in the inflation outlook, noting that core inflation rates and inflation expectations have started to fall, bringing the risks to inflation into a more balanced perspective. This adjustment in outlook significantly impacted market expectations, with the likelihood of a rate hike by May dropping dramatically from 47% to just 6%.
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