- Graeme Wheeler, Reserve Bank of New Zealand Governor
With a surprise for some analysts the RBNZ raised the official cash rate further, however, signalled a pause in interest rate hikes in order to assess the impact of monetary policy to date. As a result the Kiwi plunged most in nine months, with the corresponding index falling 0.9% against 16 major currencies. The most traded Kiwi cross, the NZD/USD currency pair, sank 1.38% to 0.8577 immediately after the report and extended its decline further during the day.
The Reserve Bank of New Zealand made its fourth consecutive rate hike, bringing the OCR to 3.50%, citing strong inflationary pressure as the main reason. Despite further tightening, the central bank claimed that it will take a pause in the process of normalization of interest rates, making it clear they are uncomfortable with the high level of the exchange rate. Currently, markets believe that Graeme Wheeler and his team will wait until 2015 before making another rate hike in the face of falling commodity prices, tame inflation and emerging signs that housing market is cooling. Referring to the 75-basis-point increase that took place already this year, the Governor pointed out the economy is adjusting to the monetary policy tightening, meaning there will be a period of assessment before further tightening. It seems that after a prolonged rally in the first half of the year, both South Pacific currencies will stabilise around the current level and will be trading in a narrow range.
© Dukascopy Bank SA