New Zealand Dollar (NZD) Exchange Rate: ‘Kiwi’ Bullish as RBNZ Rate Rise Occurs
Yesterday the Reserve Bank of New Zealand followed in the footsteps of its South African and Indian emerging-market counterparts and introduced a rate increase.
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The central bank opted to increase its key interest rate by 25 basis points, as forecast by economists, in order to counter the risks posed by domestic inflation.
During his economic statement RBNZ Governor Graeme Wheeler justified the decision to raise the key rate to 2.75 per cent by stating; ‘It is necessary to raise interest rates toward a level at which they are no longer adding to demand.’
Similarly, the bank’s monetary policy statement noted; ‘With inflation now rising and inflationary pressures building, there is a need to return interest rates to more-normal levels. The speed and extent to which the cash rate will be raised will depend on economic data and our continuing assessment of emerging inflationary pressures.’
However, while the New Zealand Dollar exchange rate surged in response to the development, the central bank once again asserted that a strong local currency could have a detrimental impact on the nation’s economy.
Wheeler intimated that the New Zealand Dollar is likely to continue trading at elevated levels for longer than previously thought, but that its high exchange rate could be a major headwind for exporters.
The ‘Kiwi’ closed local trading in a stronger position against the majority of its currency counterparts even after Chinese reports added to fears of a slowdown in the world’s second largest economy.
In other New Zealand news, the nation’s food price index dipped by 1.0 per cent in February, month-on-month, following an increase of 1.2 per cent in January.
Before the weekend additional ‘Kiwi’ movement may be inspired by New Zealand’s performance of manufacturing index for February. Last month the measure came in at 56.2, above the 50 mark separating growth from contraction.
China’s foreign direct investment report will also be of interest.