WELLINGTON, Feb 28 Reuters New Zealand39;s central bank held the cash rate steady at 5.5 on Wednesday and trimmed the forecast peak for rates, catching markets by surprise as policymakers said the risks to the inflation outlook have become more balanced.

The Reserve Bank of New Zealand39;s decision was in line with forecasts but defied some outlying market bets for a rate rise and kept the central bank more in line with global peers, most of whom have called an end to their aggressive hike cycles.

The RBNZ39;s rate forecast track and commentary were also slightly more dovish than some traders had anticipated, triggering a selloff in the New Zealand dollar and a rally in bonds.

The bank lowered its forecast cash rate peak to 5.6 from a previous projection of 5.7 toning down its hawkish stance and effectively reducing the risk of further tightening.

Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced, the RBNZ statement said.

The market had priced in around a 23 chance of a hike this week. The probability of a move by May more than halved to just 6, from 47 before the announcement. while twoyear swap rates dived to 4.995, from 5.195 and the kiwi dollar was down almost 0.9 at 0.6112 , breaking support around 0.6152.

ASB chief economist Nick Tuffley said that the tone of the statement was not as hawkish as could have been, with the risks now seen as more balanced as opposed to the…