RBNZ foils rate-cut bets, pushes out forecast for hike

WELLINGTON: New Zealand’s central bank pushed out its forecast for an interest-rate increase to early 2021, disappointing investors looking for signs of a policy easing later this year and sending the currency surging.

Reserve Bank governor Adrian Orr left the official cash rate at 1.75% yesterday in Wellington and said he expects to keep it there “through 2019 and 2020” as subdued inflation continues to warrant supportive policy.

However, the chances of a rate reduction haven’t increased, he said.

“We still see the outlook as balanced” for the OCR, Orr said in a media briefing.

“What we are saying is it may stay at this level for longer based on our current projections, in large part because of slowing global economic activity.”

New Zealand’s dollar jumped as much as 1.6%, buying 68.48 US cents as traders pared bets on lower rates.

There’s now about a 52% chance of a rate reduction by November, according to swaps data, down from 90%.

Orr did acknowledge that policy could yet be loosened, saying the next rate move could be up or down – a return to guidance used for much of last year before an explicit reference to a cut was dropped in November’s statement.

Investors had ramped up bets on a quarter-point reduction by the end of 2019 amid signs the economy is losing momentum and after the jobless rate jumped more than expected.

“The RBNZ was either unwilling or unable to meet dovish expectations,” said Andrew Ticehurst, a rate strategist in Sydney at Nomura Holdings Inc.