New Zealand bonds jump at close after RBNZ Governor Orr cuts down GDP, inflation forecasts in latest policy statement

New Zealand bonds jumped at the time of closing Thursday after the Reserve Bank of New Zealand (RBNZ) decided to remain unchanged on its benchmark interest rate at its monetary policy meeting, held early today while maintaining a tone of dovishness in its policy statement that followed.

Also, the central bank took to downgrading its forecasts for the country’s gross domestic product (GDP) and inflation for the upcoming period, which crowded investors into buying safe-haven bonds, thus weigh on yields.

At the time of closing, the yield on the benchmark 10-year note, which moves inversely to its price, slumped 3-1/2 basis points to 2.78 percent, the yield on the long-term 20-year note plunged 6 basis points to 3.29 percent and the yield on short-term 2-year closed 5-1/2 basis points lower at 1.87 percent.

The RBNZ left interest rates unchanged at 1.75 percent for a 19th consecutive month in May and the statement, that followed, remained dovish, indicating that the central bank is in no hurry to raise the benchmark interest rate.

"Economic growth and employment in New Zealand remain robust, near their sustainable levels. However, consumer price inflation remains below the 2 percent mid-point of our target due, in part, to recent low food and import price inflation, and subdued wage pressures," RBNZ Governor Adrian Orr said in his first policy statement.

For a second consecutive meeting, the RBNZ also offered no commentary on the New Zealand dollar, indicating a degree of comfort at its current level. Lastly, adding to the dovish undertones of the May monetary policy statement, the CB also downgraded its forecasts for GDP growth and inflation in the period ahead, reports said.

Meanwhile, the NZX 50 index closed 0.21 percent higher at 8,637.72, while at 06:00GMT, the FxWirePro's Hourly NZD Strength Index remained highly bearish at -156.12 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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