Apart from the return of Stranger Things, one of the blockbuster events to watch out for this week is the RBNZ monetary policy statement.
Will they step up their tightening game this time?
Here’s what happened before and what market analysts are expecting.
What happened last time?
In their April 2022 monetary policy decision, New Zealand’s central bank hiked interest rates by 0.50%.
This was a more aggressive move compared to their previous 0.25% hikes, marking their fourth consecutive tightening decision since October last year.
Their official statement noted that “moving the OCR to a more neutral stance sooner will reduce the risks of rising inflation expectations.”
In addition, policymakers noted that a larger increase in rates would give them more flexibility in light of prolonged global uncertainty. To be specific, they pointed to the impact of the pandemic and the war in Ukraine on price pressures and supply disruptions.
Still, officials highlighted the strength of New Zealand’s economy, even with disruptions brought about by the Omicron variant.
What’s expected this time?
This May, the RBNZ is expected to announce yet another 0.50% interest rate hike in order to combat rising inflationary pressures. After all, policymakers did mention that they’d rather act early in order to enjoy more policy flexibility (a.k.a. room to cut if needed) down the line.
This should bring the benchmark rate up to 2.00%, which would be one of the highest among the major central banks.
However, not all policymakers seem to be on board with these moves, as some are wary of the impact of higher borrowing costs on the housing market.
Besides, the recent focus on the possibility of a global recession due to on and off pandemic restrictions, as well as commodity shortages, might keep RBNZ officials more cautious.
Still, it’s worth noting that longer-term inflation expectations are way above the central bank’s target range, which might be enough reason for them to follow through with another big rate hike.
Not sure which pair to trade?
In any case, make sure you set stops that account for higher volatility during the event or sit on the sidelines if you’re not prepared to handle potentially large spikes.
