New Zealand Dollar Plummets After Surprise Central Bank Decision

The New Zealand dollar saw a sharp decline this Wednesday. The negative reaction followed the central bank's decision to keep interest rates at 2.75%. This move defied the near-unanimous forecasts from experts and market traders.

The monetary policy committee voted by a narrow margin of four to three to maintain rates. The country's annual inflation hit 3.7% in the third quarter. This figure was lower than the 4.1% recorded in the previous period and also came in below analyst projections.

The local currency fell 1.3% against the US dollar and the Australian dollar during the day. The accumulated devaluation against the US dollar has reached nearly 5% over the last six months. Global uncertainty and the impact on energy prices influenced the monetary authority's decision.

The central bank stated that it aims to return inflation to the 2% target in the medium term. The institution intends to avoid unnecessary instability in the local economy. The market has drastically reduced bets on an interest rate hike at the final meeting of the year.

New Zealand government bond yields retreated following the announcement. The two-year note fell by 11 basis points. Experts suggest that the central bank's less aggressive stance will likely keep the currency under selling pressure in the short term.