Reserve Bank of New Zealand likely to raise interest rates
The Reserve Bank of New Zealand’s (RBNZ) interest rate decision will be one of the most important financial events this week. As many market analysts forecast a new rate hike, traders will be focusing on how the decision might affect New Zealand’s dollar value against other currencies.
In the US, negotiations over the debt ceiling continue with the two sides suggesting that there has been some progress.
In Europe, the European Central Bank’s (ECB) policymaker Francois Villeroy de Galhau said he expects the eurozone’s central bank to reach its terminal rate no later than by summer. The Governor of the Banque de France noted that “the primary question today is not how much further to hike rates, but how large is the pass-through of what is already in the pipe. We need to monitor the pass-through of our substantial and exceptionally rapid past hikes. How long we maintain rates high is now more important than the precise terminal level.”
Reserve Bank of New Zealand decides on interest rates
The Reserve Bank of New Zealand is expected to announce its decision on interest rates on Wednesday morning. Most economists suggest that the RBNZ’s governing board will raise borrowing costs by 25 basis points. A poll conducted by Reuters showed that 14 out of 21 economists forecast rates to stay at 5.50% next quarter.
New Zealand’s central bank has remained focused on curbing inflation, lifting rates by 500 basis points since October 2021. Analysts at the ANZ said in a report: “We lifted our peak OCR forecast to 5.75% pre-Budget (on both soaring net migration and the fiscal outlook), and post-Budget, see additional upside risk to that. We’d also now put a 40% likelihood on a 50bp hike on Wednesday (versus 20% pre-Budget). That’s where the market has also settled for now.”
UK CPI inflation in April 2023
The Office for National Statistics (ONS) will publish data regarding the UK CPI inflation in April. Market experts suggest that headline inflation will come in at 8.2% on an annualised basis, much lower than the 10.1% figure recorded in March. Headline inflation is one of the biggest issues that the UK government has faced in the last few months as living costs have weighed on family budgets across the country.
A report by ING analysts stresses that downside risks for Sterling could be quite sizeable on soft UK CPI inflation data. The ING report notes that “Wednesday’s inflation data in the UK will be a make-or-break event for the Pound. If our expectations are correct and CPI data indicates enough of a cool-down in prices to convince the Bank of England to pause tightening in June, the downside risks for Sterling are quite sizeable.”
New Zealand Q1 2023 retail sales report
The RBNZ interest rate decision won’t be the only news coming from New Zealand on Wednesday morning. Statistics New Zealand will publish the first quarter’s retail sales report which is expected to show a 0.4% drop on a quarter-to-quarter basis. The last report regarding the Q4 2022 retail sales revealed a 0.6% fall. Core retail sales are forecast to fall by 0.6%, following a 1.6% drop in the last quarter of 2022.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.