New Zealand surprises by holding rates unchanged, Asia-Pacific central banks make consecutive “surprise moves” in markets

According to information from Zhichong Finance APP, the Reserve Bank of New Zealand kept interest rates unchanged on Wednesday, becoming the latest unexpected decision to catch the market off guard. Almost no economist surveyed by the market had anticipated this move—one economist even said he was "completely stunned." Investors were equally unprepared, causing the New Zealand dollar to fall sharply.

Over the past two weeks, policymakers in Indonesia and Singapore decided to hold steady despite market expectations of tightening, while the central bank of the Philippines went in the opposite direction with a surprising steep rate hike.

This reflects how accumulating risks are making it harder for Asian monetary policymakers to determine direction, and are making it more difficult for investors to interpret their signals. The global energy shock has resulted in inflation running above targets but has also weighed on consumers. The AI chip boom is also pushing up prices and bringing prosperity to exporters, yet it masks weak demand in other sectors of these economies.

Nomura economist Euben Paracuelles stated that all of this reflects "the highly uncertain environment and multiple shocks that both central banks and the market continue to face." "In this context, communication challenges may also arise, reducing the predictability of decision-making."

The unexpected decision by New Zealand triggered the largest drop in the New Zealand dollar against the Australian dollar in nine years. Next week, the Reserve Bank of Australia will also become a market focus. Some recent hawkish remarks have led investors to begin predicting a rate hike, whereas not long ago, they thought a weak labor market might lead the Reserve Bank of Australia to hold steady.

At that time, the Federal Reserve will at least remove one source of uncertainty. The Fed will announce its rate decision later Wednesday US time, and it is expected to hold policy steady.

"Unnecessary instability"

The rate hike by the Fed last month had a huge impact on Asia, triggering outflows of foreign capital, pushing some currencies close to record lows, and increasing pressure on regional central banks to follow suit by raising rates. After Indonesia failed to follow last week, the rupiah's decline accelerated.

Reserve Bank of New Zealand Governor Adrian Orr told reporters on Wednesday that a better-than-expected inflation report published before the rate meeting, during the central bank's silent period, played a key role in the decision to keep rates unchanged.

She also mentioned the delicate balance facing the central bank, saying it is committed to bringing inflation back to target but will achieve this "while avoiding unnecessary economic instability."

Sean Keane, JB Drax Honore's chief Asia-Pacific strategist in Singapore, said that negative outcomes instead "have generated unnecessary instability in the financial markets."

The same push-and-pull factors are also at work in other regional economies.

Even in chip-producing countries such as South Korea and Singapore, surging AI demand is driving exports, but energy prices are still weighing on areas like transportation, food, and utilities. For countries that have missed out on the chip boom, the shocks are even more severe.

There is also a prevailing view that if the United States and Israel resume attacks following elections, conflict in the Middle East could break out again, further squeezing energy flows.

In addition, the ever-expanding debt in the tech sector, as well as political resistance and security concerns, could stall the AI boom. If the bubble bursts, Asia is likely to be on the front line.

Analysts broadly believe that Asia will maintain the rate hike path already begun by global peers, but the timing and magnitude of any moves may become increasingly uncertain.

Khoon Goh, head of Asia research at ANZ, said: "Given that the impacts of the AI investment boom and high oil prices are not felt uniformly across the region, we may see more surprises from central banks."