(Added market reaction and analyst comments)
September 21 (Reuters) – New Zealand’s central bank toned down expectations of a sharp interest rate hike at its meeting next month, with comments on Tuesday indicating it may take a more cautious approach.
Reserve Bank of New Zealand (RBNZ) Deputy Governor Christian Hawkesby said in a speech that amid uncertainty, when risks are balanced, “central banks tend to follow a smooth path. and to keep their key rate unchanged or to move by 25 basis points. increments. “
The New Zealand dollar traded 0.2% weaker at $ 0.7015, after hitting a three-week low at $ 0.7000 earlier in the session in response to RBNZ comments. One-year swap rates fell to 1.07% from 1.15%.
The RBNZ is meeting on October 6 to review the parameters of its monetary policy. The bank suspended the official exchange rate (OCR) hike in August, despite rising inflationary pressures, after a new outbreak of the Delta variant of the coronavirus.
“The RBNZ stressed today that in times of uncertainty, a measured policy approach is appropriate…” ANZ Bank chief economist Sharon Zollner said in a statement.
“We never thought that a 50bp move was a likely start for the up cycle; this confirms it. Our OCR forecast is unchanged, with 25bp hikes coming in October and November, with hikes regular thereafter raising the OCR to 1.5% in August of next year, “she said.
In his speech which used the native Maori benchmark throughout, Hawkesby said the more adaptable white heron is a more apt metaphor for describing the central bank’s approach to monetary policy decisions in times of uncertainty than the ” traditional “hawk” signaling higher interest rates or “dove” signaling lower rates.
Hawkesby said the bank’s “least regrets” approach taken during the COVID-19 crisis requires it to be adaptable, sometimes moving cautiously in small slow steps and other times confidently, quickly and in stages. important to stay successful.
“We are well positioned to navigate the period ahead, with a labor market functioning at maximum sustainable employment levels, inflation expectations well anchored to our target and financial markets functioning well,” added Hawkesby. . (Reporting by Sameer Manekar in Bengaluru; Editing by Chris Reese and Ana Nicolaci da Costa)