At its October meeting, the RBNZ raised its official cash rate (OCR) by 25 basis points to 0.50%, in line with market expectations.
It was the first interest rate hike since June 2014 with policymakers saying the decision was appropriate to keep inflation low and support maximum employment.
According to the RBNZ as well, policymakers stressed that the removal of further stimulus will be implemented from time to time, depending on the long-term prospects for inflation and employment.
In the development of the inflation outlook, headline inflation is expected to rise above 4% in the near term before returning to the midpoint of 2% in the medium term.
What is the NZD’s reaction to this decision?
The NZD rose 30 pips to 0.69800 after the announcement but erased the entire rise because:
1️⃣ The expectation of an interest rate hike is already expected. Not surprising the market.
2️⃣ Coronavirus cases in New Zealand. The number of cases reported today was 39 cases compared to 34 the previous day.
3️⃣ Global market sentiment traded lower due to the uncertainty of the US debt limit. Risky market sentiment usually weighs on high-beta currencies such as NZD & AUD.