Analysts at Westpac offered a snapshot preview of next week’s RBNZ.
Key Quotes:
“The RBNZ announced that it now expected to keep the OCR at its current low level “through 2019 and into 2020,” longer than previously forecast. Assistant Governor John McDermott went further in commentary to the media, when he said that the RBNZ had “been pushed nearer to that trigger point” for cutting the OCR. McDermott said that the RBNZ’s OCR forecast was predicated on the economy accelerating – if that acceleration failed to materialise, the RBNZ would have to consider cutting.
We took this warning about a possible cut seriously, but predicted that an impending bout of strong data would stay the RBNZ’s hand. Specifically, we predicted that June quarter GDP would be around 1%, compared to the RBNZ’s forecast of 0.5%. Furthermore, we noted that the falling exchange rate would diminish the case for OCR cuts.
That seems to be the way things are panning out”.
- “We expect the RBNZ will leave the OCR unchanged at next week’s OCR Review.
- However, there is still a one in three chance that the RBNZ cuts the OCR over the coming year.
- We expect the tone of the OCR Review to be either neutral or dovish from a market point of view.
- A neutral Review would simply restate that the next move could be “up or down.”
- The other possibility is that the RBNZ adopts a “soft” easing bias, explicitly warning that if the economy fails to accelerate as expected, the OCR could fall.
- This would match RBNZ comments made in the media, and would be in the spirit of open and frank communication that the RBNZ has embraced.
- It seems very unlikely that the RBNZ will issue a hawkish statement that causes interest rates and the exchange rate to rise. The balance of risks for next week’s OCR Review is in the direction of lower interest rates and a lower exchange rate.”
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