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May 31, 2021

This RBNZ New Statement May Disappoint Investors

 The Central Bank of New Zealand (RBNZ) is likely to maintain the current monetary stimulus for a longer period of time than pulling it off early, a senior official said on Monday.

At last week’s policy meeting, the central bank kept interest rates and asset purchase programs unchanged. However, it also published a new projection showing an increase in interest rates earlier next year.

This makes New Zealand one of the first developed economies to signal to re -tighten their monetary policy, after the Central Bank of Canada (BOC).

Nevertheless, according to the latest statement from RBNZ Assistant Governor Christian Hawkesby, the implications of Covid-19 are not over and the current amount of monetary stimulus is still needed to support the country’s economic recovery.

Hawkesby said the central bank's projections of a rate hike next year are based on developments displayed in the economic recovery.

The positive outlook for the central bank has been driven by a faster -than -expected domestic recovery following the launch of a global vaccine, thus pushing the New Zealand dollar to continue to strengthen.

Hawkesby added further, the RBNZ is aware of risks in publishing interest rate projections recently, and the market needs to remember that it is a conditional projection, where central banks will only raise interest rates if the recovery exhibited meets their targets.

At the time of writing, the New Zealand dollar is trading around 0.72580 against the USD, slightly down from gains recorded after last week’s policy meeting.