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Analysts at ANZ explain that the RBNZ today held the OCR at 1.75% as universally expected and on balance, the tone of the MPS was more upbeat, but the key projected OCR track was unchanged from the August MPS.

Key Quotes

“It implies OCR hikes kicking off around Q3 2020, with the cash rate lifting to 2% by late 2020. However, the RBNZ was again careful to keep its options open. While the comment that the next move “could be up or down” was removed from the Policy Assessment, it was acknowledged that there are “both upside and downside risks to our growth and inflation projections.”

“While the outlook for the OCR was unchanged, projected domestic inflation is stronger and, importantly, risks were considered to be balanced. Although it could not be incorporated, the stronger starting point for the labour market will no doubt have added to this view.”

“The recent data-flow provides the RBNZ with breathing room that it is happy to utilise.”

“As a result of the strong Q2 GDP outturn the starting point for the output gap was revised up a little, but the near-term outlook for GDP growth has been revised down slightly.”

“The outlook for CPI inflation is slightly stronger in the near term on the back of Q2’s solid print, a broadly closed output gap, petrol price increases and a weaker NZD.”

“Today’s Statement moves the RBNZ firmly back into neutral territory.”

“We remain comfortable with our call that the OCR is on hold for the foreseeable future. While the near-term picture is undeniably looking stronger, risks to the RBNZ’s strong 2019 growth projections remain.”

“The reaction from the NZD to today’s decision was relatively muted, although it continues to threaten to squeeze higher. Interest rate swaps, on the other hand, have carried on from yesterday’s weakness, with significant pay-side through the mid-to-long curve as positioning is unwound. With markets likely to be sceptical now about the prospects of rate cuts, this pay-side pressure is likely to continue.”