The Reserve Bank of New Zealand’s (RBNZ) latest announcement on Wednesday has shocked the market after it for the first time signaled it would raise interest rates faster in its May session meeting.
In interest rate projections published for the first time in more than a year, the central bank has made a forecast that interest rates will start raising by mid -2022.
The news was welcomed by the market and drove the New Zealand dollar to trade higher even as the US dollar rebounded against most other major currencies.
However, according to the RBNZ monetary policy committee, any increase in interest rates is dependent on the economy growing as expected.
For now, the RBNZ has decided to keep interest rates at a low of 0.25% and its large -scale asset purchase (LSAP) program at NZ $ 100 billion.
Meanwhile, the strengthening momentum of the New Zealand dollar was further strengthened by the latest statement from Governor Adrian Orr today, who said that the current monetary policy situation will return to normal next year if the economic outlook grows as expected.
Orr also said that the bank saw inflation be above the midpoint range in the short term, peaking at 2.6%, but price risk will diminish and inflation will move steadily towards the midpoint target in the projected time frame.
He also said that the positive outlook by the central bank was driven by confidence in the worldwide launch of the vaccine and the sharp drop in health risks due to COVID-19.
Orr said the LSAP program, or quantitative easing, will continue to be extended at the current rate until the term ends in June 2022.
