Official Cash Rate New Zealand
The Official Cash Rate (OCR) is scheduled to be released by the Reserve Bank of New Zealand (RBNZ) on Wednesday, July 12, 2023, at 6:00 AM, GMT+4 (Dubai Time). The market expects the RBNZ to skip rate hikes and maintain interest rates at 5.50%. This decision would mark the first pause in rate adjustments since August 18, 2021. Let’s take a look further to evaluate the potential impact.
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Figure 1: New Zealand Official Cash Rate, forex factory.com, 2022-2023
The OCR set by the RBNZ, during the timeframe from October 2022 to May 2023 has been gradually increasing (Figure 1). Now, let’s discuss how interest rate decisions have been influenced by inflation.
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Figure 2: New Zealand Annual Inflation Rate, trading economics.com, 2020-2023
The Annual Inflation rate in New Zealand has slowly been declining from 2022-2023 (Figure 2). However, it is still considered high at 6.7%, compared to the healthy rate of 2%. This reflects the historical decisions of the RBNZ to raise rates.
But despite facing sticky inflation, the RBNZ is anticipated to pause rate hikes and maintain interest rates at 5.50%.
This was based on factors such as high inflation pressures, a strong labor market, a slowdown in demand and economic activity, and the expectation that previous OCR hikes need time to impact the economy. However, one member has recommended a 25-basis point increase, due to higher-than-expected migration and increased government spending which have the potential to stimulate demand.
Overnight Rate in Canada
In Canada, the Overnight Rate is scheduled to be released by the Bank of Canada (BOC) on Wednesday, July 12, 2023, at 6:00 PM, GMT+4 (Dubai Time). The market anticipates a 25-basis point increase, reaching a value of 5.00%. Let’s take a look at the potential outcomes.
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Figure 3: Canada Overnight Rate, forex factory.com, 2022-2023
The Overnight Rate in Canada spanning from December 2022 to June 2023 is gradually increasing. However, in the period from January 25, 2023 to April 12, 2023, interest rates reached a plateau of 4.50% (Figure 3). Now, let’s discuss the correlation between inflation and the impact on interest rate decisions.
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Figure 4: Canada Annual Inflation Rate, trading economics.com, 2022-2023
The Annual Inflation Rate in Canada has been steadily declining from 2022-2023, indicating progress toward reaching a healthy inflation rate of 2% (Figure 4).
Consequently, it is expected that the BOC will decide to raise interest rates by 25 basis points. However, it’s likely that this could be the final rate hike.
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