The RBNZ implemented its first rate hike in seven years earlier today and hinted that there could be more such rate hikes in the coming months to contain the risk of the economy overheating and inflation surging further. New Zealand’s central bank had brought down its official cash rate to 0.25% last year when the COVID-19 pandemic first started and pushed the country into lockdown.

As was widely expected by economists, the RBNZ announced a 25bp rate hike, bringing the cash rate to 0.50%. In addition, policymakers stated that they would plan to withdraw more monetary stimulus measures based on the medium term outlook for inflation and employment within the nation.

New Zealand is one of the first leading economy to announce a rate hike even as other central banks have recently started discussing the need to start pulling back on their stimulus initiatives. With today’s decision, the RBNZ joins the Norges Bank and the Bank of Korea in hiking rates for the first time since the onset of the pandemic.

Being one of the first countries to successfully contain the spread of the pandemic and reopen its economy, New Zealand has enjoyed a strong rebound from the pandemic-inflicted recession. Economists recently polled by Reuters anticipate more rate hikes in the coming months, which could bring up NZ’s OCR to 1.50% by the end of 2022 and 1.75% by the end of 2023.

Impact on NZD/USD

The New Zealand dollar has not shown much of a reaction to the news and continues to trade just under the $0.70 mark as the rate hike was almost fully priced in by the markets. At the time of writing, NZD/USD is trading at around $

With the RBNZ policy meeting out of the way, NZD/USD traders now shift their attention to the upcoming US NFP data which could drive some volatility in the kiwi. Moves in forex markets have been somewhat muted as investors await US employment data before entering new positions.