The Reserve Bank left the cash rate on hold at 2.50% last week as expected, and maintained the slightest trace of an easing bias.
The most significant change was that the explicit statement that “the OCR could still move modestly lower over the coming quarters” was removed, but they repeated that it was expected to remain “at or below” the current level until the latter part of 2010.
The RBNZ acknowledged the ongoing signs of recovery in the global and domestic economies, but as we warned, they regarded the recent gain in the New Zealand dollar as completely offsetting the other good news. Consequently, their GDP forecasts were little different from the June Monetary Policy Statement, and their interest rate track showed no change in the expected timing of rate hikes.
Given the RBNZ’s concerns about the tightening in financial conditions, we think that the nod to an easing bias was solely aimed at tempering market pricing: if it had been removed completely, the market could have taken it as a green light to push the NZD and interest rates even higher. In that sense, it’s really a cosmetic bias, since there isn’t really a case for acting on it under current conditions.
