-Graeme Wheeler, Reserve Bank governor
Despite hawkish RBNZ, it was a very quiet end of the week for the kiwi. The NZD/USD pair closed at 0.8580, while over the period the pair was trading in a fairly tight range, fluctuating between 0.8550 and 0.8640. It is not difficult to guess that the top was reached immediately after the rate hike was made, with the central bank even not making an attempt to talk down the kiwi. Too high exchange rate, however, can dampen the pace of economic recovery. The RBNZ is not concerned about it yet, as Wheeler only pointed out that the speed of future OCR hikes depends on inflationary pressure.
According to the Bank of New Zealand (BNZ), the central bank will proceed with the process of "normalizing" the OCR, by making two more rate hikes over the next three months, most preferably in June and July. Analysts from the BNZ also warned that the outlook for the New Zealand Dollar in coming months will be crucial to the near-term outlook. Kiwi weighted index hovers around 80-mark and is more than 2% higher than the level projected by the BNZ for the June quarter. Therefore, any further appreciation will reduce the inflation, the cost of imported goods. As a result the central bank will feel inclined to slow the pace of tightening of its monetary policy. We can expect several more rate hikes, however, after several months the RBNZ is likely to be less hawkish.
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