Kiwi Sinks After Central Bank Says It May Need to Lower Rates

  • New Zealand dollar falls against 15 of 16 major peers
  • May take longer than expected to hit inflation target: RBNZ

The New Zealand dollar dropped the most in 2 1/2 weeks after the nation’s central bank said it may need to cut benchmark interest rates further to boost inflation.

The kiwi dropped against 15 of its 16 most-traded peers after Reserve Bank Governor Graeme Wheeler left the policy rate at 2.5 percent and said inflation would take longer than previously expected to reach the bank’s target. The currency also weakened as Auckland-based Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, cut its 2015-2016 forecast for milk prices.

“The RBNZ did shift its policy outlook in a dovish direction and we now have an explicit and less-conditional easing bias,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland. “A further fall to 64 cents would not surprise,” for the kiwi, he said.

The New Zealand dollar dropped as much as 1.3 percent to a one-week low of 64.18 U.S. cents before trading at 64.40 as of 7:40 a.m. in Sydney. It slid 1.2 percent to NZ$1.0909 per Australian dollar. The two-year swap rate fell 4 basis points to 2.61 percent, according to Westpac pricing.

While there has been some easing in financial conditions in recent weeks as the currency has declined, “a further depreciation in the exchange rate is appropriate given the ongoing weakness in export prices,” Wheeler said.

New Zealand’s annual inflation rate dropped to 0.1 percent in the fourth quarter of 2015, the weakest since 1999, data released last week showed.

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