RBNZ’s Orr – Inflation expectations still too high

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RBNZ's Orr - Inflation expectations still too high

The New Zealand dollar is drifting on Friday. In the European session, NZD/USD is trading at 0.6110, up 0.08%.

Orr pushes back against rate cut expectations

The Reserve Bank of New Zealand has made inflation its top priority and the Bank's steep rate-hiking cycle has brought inflation lower. Still, at the current clip of 4.7%, inflation is more than double the 2% midpoint of the target band of one to three percent. Earlier this week, New Zealand released inflation expectations, which eased to 2.5% in the first quarter, down from 2.7% in Q4 2023 and lower than the forecast of 2.6%. This was the lowest level since Q3 2021.

If anyone thought that the drop in inflation expectations might prod the RBNZ to be more dovish, they were no doubt disappointed. Governor Adrian Orr responded to the release by saying that inflation is moving in the right direction but there is "more work to do to have inflation expectations truly anchored at that 2% level". In other words, there has been good progress but the battle with inflation continues.

The RBNZ has paused rates at 5.5% for four straight times and the markets have priced in a rate cut May. The central bank has pushed back against these expectations and Orr's comments about inflation expectations was the latest instance of the central bank pouring cold water on rate-cut expectations.

At the last meeting in late November, the RBZN said that a rate hike could not be ruled out and projected that there would not be any rate cuts before mid-2025. The RBNZ remains in a hawkish mood and is unlikely to consider rate cuts anytime soon.

NZD/USD Technical

• NZD/USD is putting pressure on resistance at 0.6116. Above, there is resistance at 0.6193


• 0.6072 and 0.5995 are providing support

Source: RBNZ's Orr - Inflation expectations still too high