It will maintain a rate hike guidance of 50 basis points

• The Reserve Bank of New Zealand will raise the OCR by 50 basis points to 3.5% in October.
• The focus will be on the RBNZ’s future direction after a sharp fall in the New Zealand dollar fueled inflation.
• After the RBA hiked just 25 basis points, a sudden rate hike of 75 basis points is now out of the question.

The Reserve Bank of New Zealand The (RBNZ) is set to extend its rate hike path for a fifth consecutive meeting on Wednesday. New Zealand InflationThis is the highest level in the last three decades. Coupled with the sharp fall in the New Zealand dollar, The central bank is making a strong case for continued tightening of its monetary policy.

Is a 75 basis point hike on the table?

The RBNZ is expected to raise the Official Cash Rate (OCR) by another 50 basis points, from 3.0% to 3.5%, when Council members meet on October 5. The hike means the central bank has increased interest rates by 50 basis points for the fifth time in a row. Governor Adrian will not hold a press conference following the monetary policy announcement.

Economists expect the central bank to implement a half-percentage-point rate hike at this meeting and at its next meeting in November. Majority of them Expect OCR to be 4.00% or higher by the end of 202250 basis points higher than a Reuters poll in August.

In its August monetary policy announcements, the central bank said “Not considering today’s 75 basis point rate hike“, while explaining that”50 basis point movements are ordered and sufficientThe RBNZ raised its terminal rate forecast to 4.1%, indicating a further rate hike of 100 to 125 basis points by mid-2023.

However, prior to the decision to hike fares, New Zealand’s inflation rate is at a new three-decade high of 7.3%, while the economy avoided recession in the second quarter, the easing of Covid measures helped spur GDP growth of 1.7%. On the other hand, The recent sharp fall in the New Zealand dollar is likely to keep inflation high as the cheaper currency pushes up import prices.

These factors argue for a 75 basis point rate hike by the New Zealand central bank. Will the central bank support a large interest rate hike? Probably not, especially after the Reserve Bank of Australia (RBA) slowed the pace of tightening with a 25 basis point lower-than-expected rate hike on Tuesday. The Reserve Bank of Australia indicated that further tightening would be necessary in the future, while “The money rate has increased significantly in the short term“.

Governor Adrian OrrDuring his latest appearance, pointed out He also emphasized that the tightening cycle is “very mature” but there is still work to be done. His comments failed to raise expectations for a 75 basis point hike in October. Another factor that could keep Orr and company from pushing for more rate hikes are downside risks hanging over the nation’s real estate market. Occupancy rate hikes could worsen the housing slump After the epidemic. Further, Fears of an economic slowdown in China and a growing recession around the world They could moderate the central bank from using a radical rate hike.

Trade NZD/USD with RBNZ decision

NZD/USD may face further decline towards its 2022 low of 0.5565 If the RBNZ opts for an expected 50 basis point rate hike, it will “sell the truth” effect.

Central Bank in the case Surprise and/or be more aggressive with a 75 basis point rate hike In terms of its political orientation, Jodi’s Redemption It could gain strength and move towards the 0.5900 area.

However, continued risk bias will have a significant impact on the pair’s reaction to the RBNZ decision.