Kicking for touch

NZ financial markets will kick off the week in a jubilant mood after the All Blacks’ impressive Rugby World Cup victory on Sunday. But this collective sigh of relief comes after a nail-biting build up. Rugby aside, Thursday’s RBNZ OCR Review added a dash of uncertainty to the mix last week. We will have to wait until December before we see if the RBNZ’s October decision to watch and wait becomes a lengthier pause in its easing cycle.

After three consecutive rate cuts in the lead up to last week’s OCR review the RBNZ kicked for touch with last week’s Statement, leaving the OCR unchanged at 2.75%. Such a move was in line with our expectations – especially following a speech by Governor Wheeler earlier in the month.

For now, the RBNZ has retained its easing bias, saying “some further reduction in the OCR seems likely”. But another rate cut in December is far from a done deal. This was emphasised by the addition of a new phrase in the Review: “It is appropriate at present to watch and wait.” It is not clear exactly what that meant – it could simply be a justification for the RBNZ’s on-hold decision. More likely, it was meant as a subtle indication that the RBNZ is currently in pause mode, and has not pre-committed to any particular timing of OCR reductions.

The RBNZ listed a number of swing factors it will be watching between now and December. These included uncertainty about interest rates in the United States, whether the recent rebound in dairy prices would be sustained, developments in the Auckland housing market and the exchange rate.

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