The Reserve Bank of New Zealand (RBNZ) held the cash rate steady at 5.5% on Wednesday, and reduced the forecast peak for rates, as policymakers stated the inflation outlook risks were now more balanced.

The central bank’s decision matched forecasts, keeping it more in line with other global central banks, many of which have already ended their rate hiking cycles.

Furthermore, the RBNZ’s forecast track and commentary were more dovish than traders had forecast, leading to a selloff in the local Dollar and a bond rally, Reuters reports.

The country’s central bank reduced its forecast cash rate peak to 5.6% from a prior prediction of 5.7%, lowering its hawkish stance and reducing the risk of additional tightening.

“Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced,” according to the RBNZ statement.

Markets had priced in a 23% chance of a rate hike this week, whereas the chance of a move by May declined to just 6%, from 47% ahead of the bank’s announcement.

Meanwhile, two-year swap rates fell to 4.995% from 5.195%, and the New Zealand Dollar lost almost 0.9% at $0.6112.

Central bank governor Adrian Orr said that although the committee had talked about a rate hike, “there was very strong consensus that the official cash rate right now is sufficient.”

The statement by the Reserve Bank was predominantly in line with global concerns regarding prices, echoing that it needs to maintain a restrictive policy for a while to reduce inflation under the top end of the 1% to 3% target range.

The central bank referred to a global move towards keeping policy tighter for longer.

“A more general risk to global growth is that central banks may need to keep policy interest rates at restrictive levels for longer than currently reflected by financial market pricing, to ensure that inflation targets are met,” the RBNZ statement said.

Moreover, as it stands, New Zealand’s annual inflation is running at 4.7%, with forecasts for it to return to within the target range in the second half of 2024.