WELLINGTON, July 14 (Reuters) - The Reserve Bank of New Zealand (RBNZ) surprised markets on Wednesday by announcing it was ending its bond purchase progamme from next week, although it held interest rates unchanged, sending the Kiwi dollar sharply higher.
The RBNZ kept the official cash rate (OCR) at 0.25% but halted additional asset purchases under its Large Scale Asset Purchase (LSAP) programme from July 23.
The Funding for Lending Programme (FLP) operation was unchanged.
Economists in a Reuters poll had unanimously expected RBNZ to hold rates but most didn't expect any changes to stimulus measures in this meeting.
"The RBNZ today sent a hawkish signal by announcing the end of its bond purchases from next week, whereas we only expected that to happen in August," Marcel Thieliant, Senior Australia & New Zealand Economist at Capital Economics.
The New Zealand dollar NZD= rose 0.8% after the announcement, later settling at $0.7012.
"The Monetary Policy Committee agreed to reduce the current stimulatory level of monetary settings in order to meet its consumer price and employment objectives over the medium-term," RBNZ said in its statement.
A sharply improved business outlook coupled with rising capacity pressures and inflation has prompted economists in recent weeks to bring forward their estimates for a rate hike, some to as soon as the end of the year.
At its meeting in May the RBNZ hinted at a hike in September 2022 but Governor Adrian Orr insisted the bank will only consider tightening policy after its inflation and employment targets are sustainably met.
The Reserve Bank of Australia (RBA) said earlier this month that it did not expect a rate rise before 2024.
(Reporting by Praveen Menon; editing by Richard Pullin)
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