RBNZ: More dovish than expected – Commerzbank

The kiwi is under significant pressure this morning, losing around 1% against the US dollar following the Reserve Bank of New Zealand's (RBNZ) meeting. Although the central bank cut its key interest rate by 25 basis points to 3.0% as expected, the communication surrounding this decision was much more dovish than anticipated, Commerzbank's FX analyst Volkmar Baur notes.

Kiwi might come under greater pressure over the coming months

"It started with two of the six council members voting for a 50 basis point cut. In the end, the discussions in the council did not revolve around whether interest rates should be left unchanged. Rather, the discussion focused on whether interest rates should be cut even further today."

"The press release accompanying the interest rate decision does mention that economic risks are seen on both the downside and the upside. However, the council members currently seem to be much more convinced of the downside risks. In addition, the forecast for the key interest rate was adjusted downwards. Whereas the end of the interest rate cycle was previously seen at 2.85%, it is now seen at 2.55%. This is a clear signal that today's move is unlikely to be the last."

"At the press conference, it also became clear that the current Governor, Christian Hawksby, is more concerned about a weaker economy than about temporarily high inflation. Despite the recent uptick, the forecasts for the rate of price increases have not been revised upwards, so it can be assumed that the central bank considers a possible further increase to be temporary. The RBNZ's stronger focus on weaker growth and its acceptance of at least temporarily higher inflation are likely to put the Kiwi under greater pressure over the coming months than I had previously expected."