RBNZ Raises Rates, Kiwi Drops on Lower Growth Forecast

The New Zealand dollar dropped by 0.9% following the Reserve Bank of New Zealand's (RBNZ) decision to raise its official cash rate by 25 basis points to 2.75%. The RBNZ also projected an official cash rate track of 3.15% by end-2027, lower than market expectations.

Market analysts had anticipated a peak of close to 3.5%, but the bank's forecast fell short of that target. Imre Speizer, New Zealand strategist at Westpac Banking Corporation, described the decision as 'a slightly dovish hike.'

The RBNZ noted that domestic financial conditions have become stricter due to increased wholesale rates, which have pushed up both mortgage and business loan costs. The bank also stated that the pass-through to deposit rates has remained relatively constrained.