New Zealand Dollar Drops 1.3% as Central Bank Holds Rate at 2.75%

The New Zealand dollar fell against major currencies after the Reserve Bank of New Zealand (RBNZ), the country’s central bank, held its key interest rate steady. By 8 a.m. ET Wednesday, the currency was down 1.3% against the U.S. dollar and Australian dollar, and more than 1% against the British pound, Japanese yen and euro. It had lost nearly 5% against the U.S. dollar over six months.

The RBNZ’s Monetary Policy Committee voted four to three to keep the rate at 2.75%. Market pricing for a quarter-point increase at the bank’s final meeting of the year fell to 40.8% from nearly 75% earlier Wednesday. New Zealand’s two-year government bond yield declined 11 basis points, while its 10-year yield fell 3 basis points.

Annual inflation eased to 3.7% in the third quarter from 4.1% in the prior quarter. The RBNZ’s target range is 1% to 3%, and the committee aims to return inflation to 2% over the medium term. The bank raised rates in July and September, citing economic effects of the U.S.-Iran war.

The committee said, “Global events are adding to near-term inflation pressures in New Zealand.” It cited rising fuel prices amid disruptions in global energy markets and an exchange rate that had fallen around 3% since early September. New Zealand is a net energy importer. Petrol, electricity and international airfares pushed prices higher in the three months through September. The committee aimed to discount temporary inflation disturbances and avoid unnecessary economic instability. Its final policy meeting of the year is in December.