The RBNZ dismissed all hawkish expectations circulating in the market, so the sell-off hit the New Zealand Dollar in NZD/USD and other pairs.

Expectations of further interest rate hikes have lifted NZD/USD since the middle of this month. However, the Reserve Bank of New Zealand (RBNZ) kept the interest rate at 5.5%.

The gap resulted in the New Zealand Dollar rate crashing. NZD/USD slid more than 1% to the 0.6100 range by the end of the Asian session on Wednesday (28/February), while AUD/NZD skyrocketed more than 0.6% instantly.

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The consensus believes the RBNZ will keep rates on hold in the short term. However, some experts argue that New Zealand's core inflation is still very high, and its labor market remains tight, so there is a 23% chance of an RBNZ rate hike today.

The results of the RBNZ meeting belied all those hawkish expectations. Not only did the RBNZ keep rates on hold at 5.5%, but it also lowered its projections for future interest rates.

"Core inflation and most gauges of inflation expectations have declined, and risks to the inflation outlook have become more balanced," read the RBNZ statement.

RBNZ Governor Adrian Orr admitted that the committee had discussed raising interest rates. However, he emphasized, "there is a very strong consensus that the current official cash rate is sufficient".

The RBNZ considers New Zealand's annual inflation to have weakened over the past few months. Furthermore, the inflation target will likely be reached in this year's second half.

Experts from ANZ - one of the leading banks that misjudged the RBNZ's policy direction - said they no longer expect further interest rate hikes. But ANZ still thinks the RBNZ will not start cutting interest rates this year.

"The (inflation) evidence threshold for the RBNZ committee is clearly much higher than we expected, so we reluctantly put (expectations of) further increases back in the risk basket, and push (expectations of) rate cuts to mid-2025," said Sharon Zollner, ANZ chief economist.