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The RBNZ will leave the OCR at 1.75%, as universally expected, at the June OCR announcement next Thursday, according to Liz Kendall, Senior Economist at ANZ.  

Key Quotes

“A clear, consistent message will be retained: the RBNZ will remain cautious until inflation shows consistent signs of life.”

Developments since the June  MPS  have been negative on balance.”

There are reasons to believe some degree of pick-up in inflation is around the corner.  Wage inflation is set to increase, partly as a result of policy changes, which will contribute to rising cost pressures faced by firms.”

But economic momentum is gradually softening.  Downside risks have increased, and  we expect it will be difficult to achieve above-trend rates of growth from here.”

The RBNZ will remain cautious until inflation shows more consistent signs of life.  In recent communications the RBNZ has sent a very clear message that it is determined to meet its inflation target, with a move up or down in interest rates equally likely.”

We expect that cautious message will be retained next Thursday.  The RBNZ will maintain its wait-and-see approach, even as inflation rises little by little over the coming year. After two false starts this cycle,  it will want to be sure that inflation is broad based and likely to be sustained (with headline inflation close to target) before an interest rate increase will be on the table.”

We expect that the RBNZ will eventually tighten monetary policy in the second half of 2019, once it is confident that inflation is alive and well.”