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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.”