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12.12.2014, 12:54

Kiwi: interest rate hike in near future?

The Reserve Bank of New Zealand (RBNZ) released its interest rate decision on Wednesday. The RBNZ kept its interest rate unchanged at 3.50%. This decision was expected by analysts. But the kiwi jumped against the greenback. What happened? The RBNZ Governor Graeme Wheeler said that interest rate hike "is expected to be required at a later stage" because of the economic growth of around 3% and as New Zealand's jobless rate declines.

It's a little bit strange because Wheeler said several times before that New Zealand's currency is "unjustifiably and unsustainably high". He also made the same statement on Wednesday. But interest rate hike will lead to higher New Zealand dollar.

It's unlikely that New Zealand's will raise its interest rate in near future. The reason could be a drop in consumer inflation in the last quarter. New Zealand's consumer prices declined to an annual rate of 1.0% in the third quarter from 1.6% in the second quarter. Consumer prices should also decrease in the fourth quarter as oil prices are declining.

Declining dairy prices, New Zealand's most important export product, could be the next reason that the RBNZ will keep its interest rate unchanged.

A slowdown of Chinese economy could also have a negative impact on New Zealand's economy. China is New Zealand's second biggest trading partner.

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