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Annette Beacher, chief Asia-Pacific macro strategist at TD Securities, notes that the RBNZ has cut the OCR by -25bp to 1.5% as expected by most economists, while the forward guidance is a dip to 1.4% before heading back to 1.9% by mid-2022.

Key Quotes

“It is difficult to say with conviction that more cuts are coming when the risks to the outlook in the Monetary Policy Statement are balanced. Even the final paragraph of the Policy Assessment said “a lower OCR now is most consistent with achieving our objectives and provides a more balanced outlook for interest rates”. There were no ‘scenarios’ in the MPS as they are ‘balanced’ too.”

“In the presser, RBNZ Governor said “We’ve done enough as can be seen at present”. The MPC’s task was to decide whether to act on the easing bias sooner or later, and the members unanimously chose ‘now’.”

“The RBNZ lowered its 2020 GDP projection from above-potential 2.9% to slightly below at 2.6%, via higher consumption and housing offset by weaker exports (the latter reflecting offshore risks). The CPI profile was tweaked to 1.9% for 2020/21 and the u-rate expected to be 4.2% and 4.0% respectively, and so the Bank’s dual mandate is expected to be achieved.”

“TD sees the risk of a follow-up RBNZ cut in June to be very low given the lack of high-frequency data to tip the MPC into easing again. NZD initially slipped to $US0.653 in the cut but then all-but retraced on the neutral forward guidance.”