The Kiwi plummeted after the RBNZ decisions. Overview for 18.08.2021

NZDUSD plunged after the New Zealand regulator decided not to raise its benchmark interest rate. 

The New Zealand Dollar updated its 10-month lows against the USD. The current quote for the instrument is 0.6890.

So, during its August meeting, the Reserve Bank of New Zealand decided not to revise its rate and kept it at 0.25%, while market expectations implied 0.50%. 

The regulator’s reserved attitude is connected with another coronavirus outbreak of the disease in the country, which made the government re-introduce a lot of social restrictions. A new delta COVID-19 strain led to the first outbreak over the last 6 months. Authorities’ response was pretty quick as they ordered to isolate the country. Under such circumstances, the RBNZ would be very unwise and untimely to raise the rate because the country’s economy is not ready for that.

Average market expectations imply a 60% possibility of a 25-point rate hike during the October meeting. At the end of 2021, it should remain at 0.50% but may be revised up to 1.5% by the middle of 2022. At the end of 2023, the rate in New Zealand is expected to reach 2%. 

Before this coronavirus outbreak, New Zealand authorities were pretty successful in restoring the country’s economy and the rate hike would be quite justifiable.