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RBNZ to cut rates – AmpGFX

Greg Gibbs, Analyst at Amplifying Global FX Capital, suggests that the New Zealand’s growth outlook is beginning to look more like the RBNZ’s growth risk scenario, where GDP growth stays below 3% in the coming year.  

Key Quotes

“In which case the RBNZ said in its August MPS that “As it becomes clear that growth is not picking up as expected, the OCR would need to be reduced by around 100 basis points.” (from 1.75% currently).”

“As it stands, the market is pricing in a gentle downward slope for expected cash rates, with the cash rate priced at 1.68% in 12-months (about one-quarter of a 25bp rate cut).”

“Considering the weakness in business and consumer surveys, it seems that the market may be underpricing the risk of rate cuts.”

“The RBNZ is unlikely to change policy at its meeting next week.   But it may begin to wonder why spending programs by the new government, including the various support packages for families that began in July this year, have not done more to bolster confidence and spending.”

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