Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities, notes that the RBNZ kept the cash rate on hold at 1.50% and indicated that the cash rate may need to be cut in response to the weaker global economic outlook and slowing domestic growth.
Key Quotes
“Today’s statement was in line with our expectations heading into the rate decision with the RBNZ shifting from a ‘balanced’ outlook to an easing bias – ‘a lower OCR may be needed’.”
“This shift keeps open the possibility of the RBNZ cutting the cash rate at its August meeting. Markets were pricing in close to a 90% probability to an August cut, but post statement this has been scaled back to 75%.”
“The Committee acknowledged that the Outlook for the economy has softened relative to the May 2019 projections, so expect changes to the forecasts when the next set are published in the August MPS.”
“The Bank discussed a slowdown in domestic growth before outlining the weakening global outlook. Unlike the May cut, which was a pre-emptive move against a flare up in trade tensions, domestic factors are likely to play a greater role in any future cut(s).”
“The Bank noted CPI and employment objectives were tilted to the downside and referenced softer house prices and subdued business sentiment could dampen household spending.”
“Before the August meeting on 7th August, the Bank will get another round of reads on Business investment, Q2 CPI (16th July) and Q2 Employment (6th Aug) to help shape its decision.”
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