The New Zealand dollar jumped as much as 1.7 per cent on Wednesday after the country’s central bank said it expected to leave interest rates at their current levels for the rest of 2019 and all of 2020.
The Reserve Bank of New Zealand held its official cash rate at 1.75 per cent as expected on Wednesday morning, but bank governor Adrian Orr surprised markets when he said “We expect to keep the OCR at this level through 2019 and 2020”.
Mr Orr said that in spite of weaker global impetus RBNZ expected low rates and government spending to support a pick-up in economic growth this year, adding the central bank “will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation”.
Moreover, the bank’s economic projections tipped the cash rate to average 1.8 per cent for that period and on through 2021, before climbing to 2.2 per cent in 2022.
However, Mr Orr also emphasised that the “direction of our next [rates] move could be up or down”.
The kiwi was far and away the best-performing Asia-Pacific currency on Wednesday, building further on an early jump following the statement to trade 1.7 per cent higher against the dollar in afternoon trading in Hong Kong at $0.6849.
The currency also made marked gains on the Australian dollar, which fell 1.1 per cent against the kiwi on Wednesday to NZ$1.0417. But Daniel Been and Sandeep Parekh at ANZ said they expected New Zealand’s central bank to start easing before its Australian counterpart, possibly before the end of 2019.
“This is primarily because, in Australia, the labour market is the most important factor to watch and we do not see a reversal in the near term”, the analysts said, adding, “we think the evidence of a turn in the labour market is mixed, so it is unlikely to manifest by May when we get the next forecast update from the [Reserve Bank of Australia].”
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