The Reserve Bank of New Zealand (RBNZ) left interest rates unchanged and revised its forecasts downward. NZD/USD is down nearly 1% after the announcement. Economists at Commerzbank analyze Kiwi’s outlook.
The RBNZ adjusted its interest rate forecast, lowering the overall path by around 10 bps. It now expects rates to start falling from the first quarter of 2025 (previously Q2 2025). Not really a big move.
However, the other forecasts have been revised significantly. Inflation is now expected to be 3.8% in 2024 (previously 4.3%). And the growth forecast has been downgraded even further, from 1.2% average annual growth to just 0.3%. It is little consolation that the forecast for the unemployment rate has been lowered, given the recent positive developments in the labor market.
It is therefore not entirely incomprehensible that the market does not really believe that the RBNZ will keep rates on hold for so long. After all, growth has already not looked too good lately. However, it should also be noted that the RBNZ has revised its inflation forecast for 2025 slightly higher.
In short, the forecasts are pointing to a weaker economy, but not an all-clear for inflation. Practically stagflation fears in their purest form. No wonder the Kiwi is under so much pressure today.
