New Zealand holds cash rates with hawkish bias

The Reserve Bank of New Zealand maintained its official cash rate (OCR) at 5.5% during its October meeting, extending the rate pause for the third straight meeting

By Ahmed Azzam | @3zzamous | 4 October 2023

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  • Asian stocks tumble in Wall Street's shadow as US Treasury yields soar.

  • New Zealand's central bank holds OCR at 5.5% for the third straight meeting.

In a harrowing mirror of Wall Street's turbulent descent on Tuesday, Asian equity markets plunged to multi-month lows on Wednesday, amplifying concerns among investors worldwide. This market turmoil was catalyzed by an unexpected surge in the 10-year US Treasury yields, which soared above 4.8%, a level unseen since the financial tumult of 2007. The ramifications of this sharp spike in yields rippled across the Asia-Pacific region, notably impacting shares in Australia, Japan, South Korea, and Hong Kong, all of which experienced marked declines. Meanwhile, mainland China, with its markets shuttered in observance of a week-long national holiday, remained insulated from the onslaught.

New Zealand holds cash rates, keeps hawkish bias

The Reserve Bank of New Zealand, in its October meeting, held steadfast in its decision to maintain the official cash rate (OCR) at 5.5%. This move marked the third consecutive meeting in which the central bank chose to maintain the status quo, aligning closely with market consensus. The RBNZ's decision to keep the OCR unchanged underscores its commitment to a policy of monetary restraint, a stance it has maintained since embarking on a series of aggressive rate hikes that have tallied 525 basis points since October 2021.

Simultaneously, the RBNZ remains resolute in its assessment of inflation, deeming it persistently high and necessitating a prolonged period of tight monetary conditions. The central bank has set its sights on a goal range of 1% to 3% annual inflation by the second half of 2024. It is in pursuit of this objective that the RBNZ is willing to endure the challenges of maintaining a restrictive OCR.

Notably, the committee expressed concerns regarding the immediate horizon, citing risks that activity and inflation may not decelerate as expected. These concerns, heightened by surging oil prices and other variables, cast a shadow of uncertainty over the central bank's future course of action.

In the medium term, New Zealand faces the specter of weakened global demand, with China's economic deceleration looming as a particularly ominous threat. This potential slump in export revenues poses a significant challenge for the Kiwi economy, heightening the stakes for the Reserve Bank of New Zealand.

Investors await OPEC meeting and US economic data

Today, as investors scrutinize the economic landscape, they await pivotal events, including the OPEC meeting and key US economic data. The US ADP non-farm employment change report is keenly anticipated, with expectations of a decline to 154,000 from the previous month's 177,000. Additionally, the ISM services PMI, a bellwether for economic health, is expected to hold steady at 53.5, assuaging concerns of deflationary pressures.

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