RBNZ: To cut or not to cut? – TDS

According to analysts at TD Securities, the tough question for the RBNZ in its forthcoming meeting will be to cut the rates or not to cut, given that it’s going to be a tough timing with the RBA the day before.

Key Quotes

“In our view the data hasn’t been supportive of a cut. The surprise shift to an easing bias on 27 March was about risks, not a string of data disappointments. The new MPC may choose to pause and officially sanction Orr’s easing bias. Overall we recommend a light position into the 8 May meeting.”

“What to look out for in Wednesday’s Monetary Policy Statement (MPS):

EMPHASIZE: “The direction of our next OCR move is more likely to be down.”

RE-INTRODUCE: the doomsday downside scenario where the OCR could be cut towards 1% or lower if growth disappoints.

ADJUST: OCR forward guidance completely re-written to next move is down. The last time the Bank did this sequentially was from March 2015, flattening the profile first before cutting in June (as was the timing back then, chart left below). We recommended that the RBNZ flatten the forward profile in February this year, but they didn’t, leaving the tail pointing towards an eventual hike.”

“The duel between the RBA and RBNZ will intensify as the RBA Board meets the day before, where the market (barely) looks for a cut, as does TD. While Governor Orr already switched to an explicit easing bias in late March, the data flow has not been sufficiently one-way to easily pave the way for a cut.”