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Kiwi Surges After RBNZ Unexpectedly Ends QE Early Amid Inflation Angst

Kiwi Surges After RBNZ Unexpectedly Ends QE Early Amid Inflation Angst

In a surprise announcement last night, New Zealand joined Canada (continued scaling back stimulus today) and upstaged South Korea (expected to provide guidance on its plans at Thursday’s meeting) and Turkey, with its surprise announcement that QE under the guise of the LSAP will stop from next Friday (July 23rd), as risks have switched to a potential overshoot of monetary policy targets compared to undershoot previously.

“Members agreed that the major downside risks of deflation and high unemployment have receded,” the RBNZ said.

“The committee agreed that a ‘least regrets’ policy now implied that the significant level of monetary support in place since mid-2020 could be reduced sooner.”

Signs are emerging that New Zealand’s economy may be overheating, pushing inflation toward the top of the RBNZ’s target range.

“The RBNZ has clearly changed tack,” said Nick Tuffley, chief economist at ASB Bank in Auckland.

“The risk of inflation and employment undershooting their objectives has switched to the risk of overshooting should the current level of stimulus remain in place.”

New Zealand’s s 10-year benchmark yield soaring as much as 11bps to 1.78%, and the Kiwi is up almost 1%…

Source: Bloomberg

Investors are now fully pricing in a rate hike in November, up from an 82% chance before the statement, and there’s now a 76% probability of a move in August.

With US inflation pushing multiples of New Zealand’s, we wonder what ‘science’ Powell is using relative to RBNZ’s?

Tyler Durden
Wed, 07/14/2021 – 10:13

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