The Central Bank of New Zealand raises interest rates by 25 basis points, however NZD/USD actually failed to strengthen because this move had been anticipated by the market.
On Wednesday (24/November), New Zealand's central bank (RBNZ) raised its benchmark interest rate by 25 basis points to 0.75 percent, in line with previous market expectations.
The RBNZ's monetary policy committee also agreed to continue to reduce monetary stimulus amid an economic recovery that looks already quite solid from the impact of last year's pandemic.
Responding to the dynamics of rising prices triggered by global supply chain bottlenecks and labor market recovery, the RBNZ expects the inflation rate to be above 5 percent in the near term.
This is what underlies the rate hike of 25 basis points in this month's policy announcement.
However, the RBNZ reveals difficulties in distinguishing between temporary inflation (due to supply chain disruptions) and sustainable inflation based on domestic economic recovery.
The RBNZ also stated that global economic activity continues to recover as it is supported by accommodative monetary and fiscal policy arrangements by central banks in many countries.
Although social restrictions in some of New Zealand's main cities have resulted in a decline in economic activity, the economy is quite solid because it is supported by household consumption, investment, and the export sector.
New Zealand's central bank assesses the labor market is getting tighter.
In fact, in a follow-up statement, the RBNZ policymaker acknowledged that current employment conditions were above the target.
NZD/USD Slumps Due to Risk Off
The increase in the RBNZ interest rate had actually been anticipated by the market so that it failed to support the New Zealand currency.
In addition, the rising global risk off sentiment caused by the surge in COVID-19 cases in Europe suppressed the movement of commodity currencies such as the NZ Dollar.
At the time this news was written, the NZD/USD pair was moving in the range of 0.6897 or 0.68 percent lower from the daily open price.
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