NZ Dollar Trims Losses as RBNZ Signals About Stimulus Withdrawal

The New Zealand dollar was soft today, but managed to erase part of its losses after the central bank signaled that it may reduce monetary stimulus in relatively near future.

The Reserve Bank of New Zealand kept its benchmark interest rate (the Official Cash Rate) at 2.5 percent today. Governor Graeme Wheeler indicated in the statement that inflation pressure is strengthening:

Annual CPI inflation increased to 1.4 percent in the September quarter and inflation pressures are projected to increase.

As a result, he signaled about plans to increase the OCR:

The Bank will increase the OCR as needed in order to keep future average inflation near the 2 percent target midpoint.

In the Monetary Policy Statement, the central bank said:

With stronger momentum than its trading partners, New Zealand’s inflationary pressures will rise more quickly and monetary stimulus is expected to need to be withdrawn sooner in New Zealand.

The RBNZ repeated several times in the statement that “it is becoming unnecessary to maintain the current degree of monetary stimulus”.

NZD/USD was down from 0.8310 to 0.8199 intraday, but bounced to 0.8253 as of 20:56 GMT today. NZD/JPY traded at 84.50 following the drop from 85.46 to 84.03.

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