Providing a series of hawkish surprises, the RBNZ noted that the decision between a 25bp and 50bp hike was “finely balanced”, and it increased the OCR peak forecast by 75bp, from 2.6% to 3.35% and pulled forward expected hikes.
In the lead up to today's meeting, the market was priced for the terminal rate to be pushed higher to just under 3%, still well above the RBNZ’s estimate of neutral at 2%.
There was still more ammunition for the hawks - the RBNZ said its Large-Scale Asset Purchases Program (LSAP) would be reduced (Quantitative Tightening) via a combination of not reinvesting maturity proceeds and selling $5bn per year, starting in July, directly into the New Zealand debt market.
The final paragraph of the statement reaffirmed the hawkish bias and the RBNZ’s determination to tackle inflation, now almost twice the top of the RBNZ’s 1-3% target band. Notably, the RBNZ does not have headline inflation back in the band until mid-2023, and it is not expected to return to the middle of the band until early 2025.
“The Committee agreed that further removal of monetary policy stimulus is expected over time given the medium-term outlook for growth and employment, and the upside risks to inflation.”
Turning to the currency market, the NZDUSD outperformed overnight, adding 0.5% to close at .6735 and following the RBNZ’s hawkish surprise, yields are considerably higher across the curve.
This provides the backdrop for the NZDUSD to continue to grind higher, initially into a layer of resistance at .6800/20 before a push towards the January .6890 high. A break and daily close below .6700s would negate the bullish bias.
Source Tradingview. The figures stated areas of February 23rd, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation