New Zealand dollar dips 1.8% to five-month low after RBNZ keeps interest rates unchanged

The New Zealand dollar dropped as much as 1.8 per cent against its US counterpart on Thursday after the Reserve Bank of New Zealand left interest rates at a record low.

The currency had pulled back to trade down 1.5 per cent at $0.6833 in morning trade, but only after falling to $0.6803, the weakest level against the greenback since June 3, 2016.

The dip came after the country’s central bank kept its official cash rate unchanged at 1.75 per cent, as expected by every one of 27 analysts surveyed by Reuters.

In a statement accompanying the decision, bank governor Graeme Wheeler noted that while global economic growth had “become more broad-based over recent months… major challenges remain with on-going surplus capacity and extensive political uncertainty.”

“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly,” he said.

New Zealand’s consumer price index came in at 2.2 per cent year on year in the first quarter, and Mr Wheeler attributed the rise in headline inflation to higher – and temporary – tradables inflation, “particularly petrol and food prices.”

He noted that non-tradables and wage inflation were expected to increase gradually, bringing headline inflation to the midpoint of the bank’s target range of 1-3 per cent over the medium term. “Longer-term inflation expectations remain well-anchored at around 2 percent,” he added.