RBNZ and the Impact of Interest Rates on NZDUSD

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The Central Bank of New Zealand reduced its current monetary stimulus as the main negative risk of deflation. Moreover, high unemployment dropped amid improving economic activity.

The Monetary Policy Committee of the Reserve Bank of New Zealand decided to stop the additional purchase of assets within the program of large property purchases until July 23.

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The board decided to keep the official interest rate at 0.25 percent and the program for financing lending unchanged.

The Committee agreed that the “least regret” policy now implies a significant level of financial support that existed since mid-2020 see a reduction sooner. This is to reduce the risk of non-compliance with its mandate.

Policymakers have noted that the economy remains robust despite the continued impact of international border restrictions. Aggregate economic activity is above pre-COVID-19 levels.

The MPC expects short-term spikes in core consumer price inflation in June and September. This is either due to one-off factors such as high oil prices or temporary duration. That can include supply shortages and higher transportation costs.

In the absence of any further significant economic shocks, more persistent pressures on consumer price inflation are expected to increase over time due to growing domestic capacity pressures and growing labor shortages.

The MPC noted that medium-term inflation and employment are likely to remain below their targets without ongoing cash support. However, the board agreed that the level of monetary incentives can face reduction. This will aid in reducing the risk of failing to meet its mandate.

The end of the property purchase signals that interest rates will soon rise said Marcel Thieliant, an economist at Capital Economics.

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