Double trouble for markets as RBNZ hikes rates

New Zealand investors had a jolt this afternoon when the Reserve Bank dished up a double helping of interest rate hikes, bringing the official cash rate to 1.5%.

Wednesday, April 13th 2022, 7:08PM

by BusinessDesk

The S&P/NZX 50 Index fell 14.2 points, or 0.1%, to 11,875. Turnover was $156 million.

Stocks were already trading lower this morning, after US inflation hit 8.5% overnight, but the index dropped another 15 points when the rate hike hit the headlines at 2pm.

Overall, the impact on the local equity market was short-lived, with the RBNZ’s policy decision not as aggressive as it looked at face value.

Fisher Funds’ fixed income portfolio manager, David McLeish said the key takeaway from the release was that investors expect more rate hikes than the bank does.

“The Reserve Bank thinks the interest rate market had gotten too far ahead of itself in terms of how high the official cash rate would go and how quickly it would get there,” he told BusinessDesk.

BNZ’s head of research, Stephen Toplis said it felt “bizarre” to describe the biggest rate hike in 22 years as being “dovish” – a slang term meaning supportive of low interest rates – but it was.

The central bank said it was comfortable with its February rate forecast, which suggested the cash rate would peak at 3.35%, contradicting the market pricing of a 4.25% peak.

Accordingly, bond yields on NZ government bonds actually retreated after setting a new multi-year high almost every day this week.

Tina Teng, a markets analyst at CMC Markets, said the NZ dollar initially surged to 69 US cents on the announcement but quickly dropped back to about 68.5c.

She said RBNZ’s comments about retaining “policy flexibility” in light of global economic uncertainty suggested the pace of rate hikes might not be sustained.

Stocks on the NZX were mixed: Trustpower fell 5.6% to $6.90, Skellerup Holdings was down 2.8% at $5.66, and Meridian Energy declined 2% to $4.80.

Logistics companies Move and Mainfreight were down 2.7% and 1.9% at $1.45 and $80, respectively. Port stocks rallied, Tauranga Port up 2.5% to $6.57 and Napier Port up 3.1% at $2.99.

NZ King Salmon had the day’s biggest decline, falling almost 20% to 69 cents, after it announced it would raise capital at 15 cents per share – a 55% discount to its ex-right market price.

Eroad fell 4.1% to $3.05 today, but it has been in sharp decline ever since its founder and chief executive resigned unexpectedly last week.

The acting CEO, board chair, and chief financial officer hosted an investor call this morning in an effort to steady the ship but did not provide any detail about Newman’s resignation.

The board and management said they were confident the company’s outlook was unchanged, but investors did not seem convinced and have sold the stock down 30%.

Tags: Market Close