"While headline inflation has been moderate, inflationary pressures are expected to increase over the next two year. In this environment, there is a need to return interest rates to more-normal levels. The bank expects to start this adjustment soon."
- Graeme Wheeler, RBNZ Governor
The kiwi was poised to rocket after the RBNZ meeting, where policymaker were expected not to raise interest rates, but at least provide some hawkish comments. On the contrary, the NZD/USD pair plunged below the important support level at 0.8205 and on Thursday was heading to 0.8150. The next level that can stop pair's depreciation is located at 0.8139. The Reserve Bank of New Zealand decided keep the key refinancing rate on hold at 2.5%, citing the necessity to maintain rates at the current level to dampen inflation. Policymakers also pledged to start increasing rates as soon as inflation moves towards the midpoint of the central bank's 1-3% target band.
New Zealand is projected to become the first developed economy to begin raising its benchmark interest rate, as growth picks up and housing boom stokes price pressure. The recent kiwi gains provided the RBNZ with the scope to prolong the period of record-low interest rates. Gross domestic product expanded 3.5% in the year ended in September, while the latest projections are speaking in favour of further acceleration. Moreover, a gauge of business confidence soared to the highest level since 1994 last month, with 52% of companies having a confident outlook. Economists believe, the RBNZ will increase the OCR during the March's meeting, marking strong gains in kiwi's value during the upcoming weeks.
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