The New Zealand Dollar edged up against the US Dollar, Sterling, Euro and other major currencies on Wednesday as the Reserve Bank of New Zealand (RBNZ) hiked interest rates by 50 basis points.

The increase surpassed the market’s forecast 25 basis point hike, with the central bank stating, “Higher near-term CPI inflation increases the risk that inflation expectations persist above our target range.” 

According to the Global Head of FX Strategy at RBC Capital Markets, Elsa Lignos: “We think NZD will be more resilient as carry still has value in the current environment and cuts may take some time to materialise.”

At the time of writing, the Pound to New Zealand Dollar declined to a low of 1.9590 before paring losses to 1.9684, Pound Sterling Live reports.

Whereas against the US Dollar, the New Zealand Dollar reached a high of $0.6378 before dropping to 0.6341.

New Zealand Dollar support comes as the central bank’s decision “was in contrast to many of its overseas peers, who have tended to look to slow the pace of increase after last year’s flurry of rate hikes,” said Westpac economist Kelly Eckhold.

The Reserve Bank of New Zealand justified the rate hike decision after stating the cost of lending in the country has declined since February. As such, a robust move was needed to keep conditions tight.

The central bank stated: “Wholesale interest rates have fallen significantly since the February statement, and this could put downward pressure on lending rates. As a result, a 50-basis point increase in the OCR (official cash rate) was seen as helping to maintain the current lending rates faced by businesses and households.”

The bank’s February forecasts revealed RBNZ economists believed the official cash rate would need to reach 5.5%, and this still looks to be the case, according to the guidance.

As such, an additional 25 basis points of tightening appears to be in the pipeline, indicating an end to the hiking cycle may be near.