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The Reserve Bank of New Zealand (RBNZ) is widely expected to leave the Official Cash Rate (OCR) unchanged at 2.25% tomorrow. Alongside the decision, we’ll also get the latest Monetary Policy Statement and updated economic projections.Analysts expect the central bank to signal an earlier start to rate hikes, with the first increase seen in December 2026. Inflation forecasts are also likely to be revised higher. These expectations have been driven mainly by stronger-than-expected Q4 inflation, which came in at 3.1%, well above the RBNZ’s 2.7% projection. At the same time, incoming data has generally pointed to a steady economic recovery.Although the latest unemployment rate was slightly above the RBNZ’s forecast, it was accompanied by a rise in the participation rate, making it less of a concern overall.That said, there’s risk for disappointment. Markets have already priced in around 37 basis points of tightening by year-end, and many analysts are looking for two rate hikes this year. However, Governor Breman’s comments on January 23 were not particularly hawkish. While she acknowledged the ongoing recovery, she also highlighted lingering signs of weakness. She reiterated that favourable conditions remain in place to bring inflation back to the 2% midpoint target, citing spare capacity in the economy and moderate wage growth.Even if the RBNZ simply meets expectations by bringing forward the first rate hike to December 2026, we could still see a classic “sell-the-fact” reaction in the New Zealand dollar. It’s unlikely that the central bank will deliver a more hawkish surprise than the market is already anticipating, but if it does so by signalling two rate hikes by year-end, then we should see a strong rally in the New Zealand dollar across the board.If policymakers instead strike a more cautious tone, downplaying the recent inflation pickup and focusing on softer areas of the economy, the NZD could come under more pronounced pressure.
This article was written by Giuseppe Dellamotta at investinglive.com.
💡 DMK Insight
The RBNZ’s decision to maintain the OCR at 2.25% is crucial for traders focused on the Kiwi dollar and interest rate-sensitive assets. With expectations of an earlier start to rate hikes, this could shift market sentiment significantly. If the RBNZ hints at tightening sooner than anticipated, we might see a bullish reaction in the NZD, especially against currencies like the AUD and USD. Traders should keep an eye on the Monetary Policy Statement for any language that suggests a shift in their inflation outlook or economic growth projections. A strong signal could push the NZD/USD above key resistance levels, while a dovish tone might lead to a pullback. Watch for volatility around the announcement, as market participants react to the implications for future rate hikes and economic stability.
📮 Takeaway
Watch for the RBNZ’s Monetary Policy Statement; any hint of earlier rate hikes could boost the NZD significantly against the USD.
