Volkmar Baur at Commerzbank notes the RBNZ held rates at 2.25% with a hawkish split vote, pushing market odds of a July hike above 70%. He judges the market’s pricing of five hikes over 12 months as ambitious given New Zealand’s weak economy, seeing short-term support for the Kiwi but renewed pressure from higher inflation and weak growth over the medium term.

Hawkish hold but growth constraints

"As expected, the Reserve Bank of New Zealand left the key interest rate unchanged at 2.25% this morning—but contrary to expectations, the tone of the statement was much more hawkish than anticipated. The key interest rate was kept unchanged by a 3-3 vote. While three board members voted for an immediate rate hike, in the event of a tie, Governor Anna Breman’s vote is decisive, and she had voted to keep the rate unchanged."

"All in all, it sounded as though a rate hike at the next meeting in July was now much more likely than not, and the market therefore raised its expectations for a July rate hike from around 60% to just over 70%."

"Over the next 12 months, however, the market is now pricing in a total of five further rate hikes. We consider this to be somewhat ambitious, as the New Zealand economy appears a bit too weak to us for that, particularly with regard to the housing market."

"In the short term, the kiwi will certainly be able to benefit from the central bank’s new, more hawkish stance. In the medium term, however, an environment of higher inflation and persistently weak growth is likely to weigh on the currency again."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)