The New Zealand dollar strengthened to around $0.570 after the Reserve Bank of New Zealand (RBNZ) raised its official cash rate by 25 basis points to 2.50%, in line with expectations, and signaled that further increases are likely later this year. This was the RBNZ’s first rate hike in more than three years, as policymakers moved to contain inflationary pressures stemming from the Middle East conflict and to safeguard the country’s economic recovery.
The central bank noted that easing geopolitical tensions and a recent decline in energy prices had reduced some inflation risks. However, it cautioned that the effects of the conflict would linger and that the inflation outlook remained uncertain. While economic growth is believed to have slowed in the second quarter due to the fuel price shock, the RBNZ expects growth to pick up again in the third quarter.
Most economists now expect one or two additional rate hikes this year, and financial markets have almost fully priced in another move in October.
