NZD Soars as Markets Cheer RBNZ’s Rate Hike Plans
Aiswarya Gopan • 2 min read
The New Zealand dollar soared to the highest level seen in three months on Wednesday after the RBNZ held its interest rates steady as markets expected, but offered reason to cheer as it announced a timeline for hiking interest rates. At the time of writing, NZD/USD is trading at around $0.73.
In the latest meeting earlier in the day, the New Zealand central bank also chose to continue with its $100 billion worth of large scale asset purchase (LSAP) program and decided to keep its Funding for Lending Programme (FLP) steady. Like most other leading central banks, the RBNZ has also pledged to hold interest rates unchanged at a record low of 0.25% until inflation and employment rebound to pre-pandemic levels.
What moved the markets, however, was the announcement that the central bank expects to hike interest rates to 0.5% latest by September next year and have its OCR touch 1.5% by the end of 2023. Following the announcement, investors are now forecasting the first rate hike by RBNZ as soon as August 2022; however, it could even come sooner in case other central banks turn hawkish in the coming months as the economic recovery around the world picks up pace.
The optimism of the RBNZ was supported by the New Zealand economy’s rapid recovery from the coronavirus crisis, powered by a rise in employment and consumer spending. In addition, New Zealand and Australia have also opened a “travel bubble”, allowing travel between the two countries in a bid to boost economic activity.