ANZ on RBNZ Rate Decision Impact on NZD - FJElite

Short-end interest rates and the NZD/USD exchange rate both rose moderately after the hike. Given markets went into today with around 80% of a hike priced in, the bigger surprise would have been a hold. The Committee stopped short of offering firm forward guidance, preferring to emphasise conditionality. However, the Committee’s rather pointed comments that “increasing the OCR at this meeting is intended, in part, to avoid an unwarranted further easing in financial conditions" and “further OCR increases appear likely at upcoming meetings" will likely put a bit of a floor under short-end rates, and by extension the Kiwi. As the year progresses, data will dictate how quickly the OCR goes higher, but the direction of travel is clear.

The Committee also made a small tweak to the pace of quantitative tightening (QT) (the unwinding of the RBNZ’s Covid-era LSAP portfolio). In particular, they are "bringing forward the final sale of $141 m of New Zealand Government Bonds from July 2027 to June 2027 and divesting the LGFA securities due to mature after June 2027, totalling $392m". This change is technical in nature, and we concur with the Committee’s assessment that this is unlikely to have much of an impact on monetary policy settings, given the small volumes of bonds impacted.