Breaking: RBNZ hikes OCR by 50bps as expected, Kiwi jumps

The Reserve Bank of New Zealand raised the OCR by 50 bps to 4.75% in February.

NZD/USD has rallied to 0.6245 as markets look past the Cyclone Gabrielle-led damage and the prospects of a more hawkish Federal Reserve. Instead, investors are wary of the RBNZ's higher inflation expectations from 3.8% to 4.2% by March 2024. 

Key notes

• RBNZ sees the OCR at 5.14% in June 2023 (previous 5.41%)
• Employment remains above its maximum sustainable level, and short-term inflation expectations remain high.
• Demand continues to outstrip supply.
• 50 and 75 bps increases were discussed.
• RBNZ still expects the cash rate to peak at 5.5%.
• While there are early signs of lessening pricing pressures, core consumer price inflation remains excessive.
• Core inflation remains too high.
• Monetary conditions must be tightened even more.
• Sees the OCR at 5.14% in June 2023 (previous 5.41%)
• There are early signs of lessening price pressures.
• Committee members agreed that monetary conditions needed to tighten much more.
• The committee remains committed to implementing monetary policy.
• RBNZ expects annual cpi to be 4.2% by March 2024 (previous 3.8%).
• Expects the official cash rate to be 4.05% in March 2026.

NZD/USD update

NZD/USD is showing signs of resilience to US Dollar strength on the interest rate decision:

Traders are looking to the RBNZ’s peak rate forecast and Governor Adrian Orr’s press conference later today. These will likely hold the key for NZD in the short term. 

About the RBNZ interest rate decision

RBNZ Interest Rate Decision is announced by the Reserve Bank of New Zealand. If the RBNZ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the NZD.