Rates as of 0500 GMT

Market Recap

The star performer overnight was obviously NZD, which jumped based on a more aggressivethanexpected Reserve Bank of New Zealand RBNZ. It hiked rates by 50 bps as was widely expected, but then forecast even higher rates to come. A larger and earlier increase in the OCR reduces the risk of inflation becoming persistent, while also providing more policy flexibility ahead in light of the highly uncertain global economic environment, the statement following the meeting said.

The forward guidance at the end of the statement was also more aggressive than before. They said

The Committee agreed to continue to lift the OCR at pace to a level that will confidently bring consumer price inflation to within the target rangeOnce aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level.

Compare this with the April statement, which just said that

The Committee will remain focused on ensuring that current high consumer price inflation does not become embedded into longerterm inflation expectations.

What level of the OCR will confidently bring consumer price inflation to within the target range? According to the forecasts in the accompanying Monetary Policy Statement, its 3.95 in Q3 2023. This compares with Februarys forecast of a peak of 3.35 in 2024. On the contrary, the new forecast now shows the OCR starting to gradually decline from Q2 2024.

I dont usually spend much time reviewing data thats…