Breaking: RBNZ hikes rates by 25 bps to 5.50% in May, as widely expected

At the May policy meeting, the Reserve Bank of New Zealand (RBNZ) board members decided to increase the official cash rate (OCR) by 25 basis points (bps) from 5.25% to 5.50%, as widely expected.

Minutes of the meeting and Summary of the statement

Sees official cash rate at 5.5% in September 2023 (pvs 5.43%).

Sees official cash rate at 5.5% in June 2024 (pvs 5.5%).

Sees twi nzd at around 71.5% in June 2024 (pvs 71.5%).

Sees annual CPI 3.7% by June 2024 (pvs 3.6%).

Sees official cash rate at 5.43% in September 2024 (pvs 5.44%).

Sees official cash rate at 3.31% in June 2026.

Sees cash rate peak at 5.5%.

Sees march quarter GDP at +0.3% .

Forecasts negative GDP growth for Q2, Q3 in 2023.

Level of interest rates constraining spending and inflation.

Interest rates will need to remain at restrictive level for forseeable future.

Global growth remains weak, inflation pressures are easing.

In New Zealand inflation is expected to continue to decline from peak.

Core inflation pressures will remain until capacity constraints ease further.

OCR set to remain restrictive .

Businesses reporting slower demand for goods and services.

Raising the OCR to 5.50% is consistent with the projections.

Reached a consensus that interest rates will need to remain at a restrictive level for the foreseeable future.

By a majority of five votes to two, the committee agreed to increase the OCR by 25 basis points.

Market reaction

In an immediate reaction to the RBNZ announcement, NZD/USD lost nearly 70 pips to surrender the 0.6200 level. The pair is down 0.93% on the day at 0.6187, as of writing.

Why the RBNZ decision matters to traders?

The Reserve Bank of New Zealand (RBNZ) holds monetary policy meetings seven times a year, announcing their decision on interest rates and the economic assessments that influenced their decision. The central bank offers clues on the economic outlook and future policy path, which are of high relevance for the NZD valuation. Positive economic developments and an upbeat outlook could lead the RBNZ to tighten the policy by hiking interest rates, which tends to be NZD bullish.