New Zealand central bank keeps rate at 2.75%, country's dollar falls — CNBC

In New Zealand, the Reserve Bank kept its key interest rate at 2.75%, surprising the market, which had almost certainly expected an increase. Following the decision, the New Zealand dollar fell sharply against major currencies: as of 8:00 a.m. U.S. Eastern Time, it was down 1.3% against the U.S. dollar and the Australian dollar, and more than 1% against the pound sterling, the euro and the yen.

According to CNBC, the New Zealand currency has lost almost 5% against the U.S. dollar over six months. The decision was made by the Reserve Bank of New Zealand's Monetary Policy Committee, with four of its seven members supporting it.

Inflation slowed

Traders had virtually priced in a rate hike, while most economists surveyed by Reuters also forecast tighter monetary policy. At the same time, annual inflation in New Zealand stood at 3.7% in the third quarter, compared with 4.1% in the previous quarter, and came in below expectations.

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The central bank's target inflation range is 1% to 3%. In July and September, the regulator had already raised the rate twice, citing the economic consequences of the war between the United States and Iran. The bank said global events were increasing short-term inflationary pressure: fuel prices rose due to disruptions in global energy markets, while the exchange rate has declined by about 3% since the beginning of September.

Market revised expectations

New Zealand is a net energy importer and is therefore vulnerable to external supply-chain disruptions. Petrol, electricity and international air travel put significant pressure on prices from July through September. The regulator said it seeks to return inflation to 2% over the medium term, without overreacting to temporary price fluctuations and while avoiding unnecessary instability in the economy.

Following the decision, the probability of a 25-basis-point rate hike in December, according to LSEG, fell to 40.8%, compared with nearly three chances in four a few hours earlier. The yield on New Zealand's 10-year government bonds fell by 3 basis points, while that on two-year bonds dropped by 11 basis points.