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Not so fast with interest rate cuts in New Zealand

Not so fast with interest rate cuts in New Zealand

created Forex Club22 May 2024

It appears that the Federal Reserve won't be the only one that will have trouble delivering interest rate cuts this year. The RBNZ surprised with its hawkish view on the monetary outlook, resulting in a shift in market expectations for a cut interest rates only for 2025. In turn, in Great Britain, inflation fell less than expected, which somewhat closed the potential June deadline for reducing interest rates. Will this high level apply to most central banks in the world for a long time?

Rate cut only in 2025?

The bank's statement and Orr's conference - the boss RBNZ were received hawkishly by the market. Orr pointed out that central bank policy must remain restrictiveto bring inflation to the target. He emphasized that inflation will reach the range of 1-3% at the end of this year, suggesting that the first possible date for a reduction will be the beginning of 2025. This means that the market has moved its expectations from November this year to February next year.

More importantly, the RBNZ has even discussed the possibility of increasing interest rates this year and The forecasts themselves do not indicate the start of cutting interest rates even until September next year! This, of course, led to the great strength of the New Zealand dollar, which is gaining approximately 0,5% against the American and Australian dollars.

Inflation falling in the UK

The British pound is also showing great strength, gaining on the wave of data releases CPI inflation for April. The massive drop was expected due to the reduction in the maximum energy price in Great Britain. However, the drop in inflation did not turn out to be as significant as the market expected. Headline inflation fell from 3,2% to 2,3%, while the expected reading was 2,1%. What is more important, however, is core inflation, which dropped only to 3,9% from 4,2% against expectations of 3,6%. Core inflation increased by as much as 0,9% on a monthly basis! Just yesterday, the chances of the Bank of England cutting interest rates in June were estimated at over 50%. After today's readings, this probability has dropped to 15%.

Therefore, it is clear that key banks may delay reductions. Of course, we are observing declines in interest rates in Sweden, the Czech Republic and Hungary, but we should not expect such a move in Poland in the near future. Today we will get data on producer inflation and labor market data from Poland, and in the evening we will get minutes from the last FOMC meeting, so the dollar may be slightly more volatile in the evening.

Before 09:00 a.m. we pay PLN 3,9172 for a dollar, PLN 4,2549 for a euro, PLN 4,9958 for a pound, PLN 4,2931 for a franc.

Source: Michał Stajniak CFA, XTB

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