New Zealand central bank holds rates, points to hike next year

Credit: REUTERS/DAVID GRAY

The Reserve Bank of New Zealand (RBNZ) kept its official cash rate (OCR) unchanged in a widely expected decision on Wednesday, but projected a rate hike by September next year, sending the local currency higher.

By Praveen Menon

WELLINGTON, May 26 (Reuters) - The Reserve Bank of New Zealand (RBNZ) kept its official cash rate (OCR) unchanged in a widely expected decision on Wednesday, but projected a rate hike by September next year, sending the local currency higher.

The central bank retained its large scale asset purchase (LSAP) programme at NZ$100 billion ($72.18 billion). The Funding for Lending Programme (FLP) operation was unchanged.

Economists in a Reuters poll had unanimously expected the RBNZ to hold rates.

In its OCR projections, the RBNZ pencilled the cash rate to reach 0.5% in September next year and to 1.5% by the end of 2023.

The New Zealand dollar NZD= rose 0.5% to as high as $0.7269 after the central bank announcement.

The bank, however, tried to play down expectations by saying it would maintain its current stimulatory monetary settings until its inflation and employment targets are met.

"Meeting these requirements will necessitate considerable time and patience," it added in the statement.

Recent positive data, such as unemployment falling to 4.7% and prices of key commodities, particularly dairy, have raised expectations that the bank would tighten rates earlier than previously thought.

Financial markets are pricing in a first rate move as early as August 2022, though much depends on what other central banks are doing as the RBNZ could be reluctant to tighten alone and risk sending its dollar sharply higher.

"With the RBNZ set to become one of the first central banks in advanced economies to hike rates, we think that the New Zealand dollar will continue to strengthen against the US dollar," Marcel Thieliant from Capital Economist said in a note.

($1 = 1.3854 New Zealand dollars)

(Reporting by Praveen Menon and Renju Jose; Editing by Sam Holmes)

((praveen.menon@thomsonreuters.com; +6448028163; Reuters Messaging: praveen.menon.thomsonreuters.com@reuters.net; Twitter: https://twitter.com/Journopraveen))

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