The New Zealand dollar weakened on Wednesday after the release of disappointing inflation figures, fueling expectations of a potential interest rate cut by the Reserve Bank of New Zealand (RBNZ).

The data revealed that inflation remained below the RBNZ’s target range, prompting investors to reassess their expectations for future monetary policy. The central bank has a mandate to keep inflation within a 1-3% band.

Analysts suggest that the weaker inflation data increases the likelihood of the RBNZ lowering interest rates in the coming months to stimulate economic growth. Lower interest rates can encourage borrowing and spending, potentially boosting inflation.

The kiwi dollar’s decline reflects market sentiment that the RBNZ may need to take a more dovish stance to support the economy. The currency’s value is often influenced by expectations surrounding interest rate movements.

The RBNZ will be closely monitoring economic data in the coming weeks to assess the need for further policy adjustments. The central bank’s next monetary policy decision will be closely watched by market participants.