According to the team, “We think that the central bank’s stance is entirely appropriate for the current economic environment. As a result, we are sticking with our pick for the first rate hike in December of this year with the risks evenly weighted between sooner and later. More immediately, we think the probability that rates will remain unchanged in March 2013 is around 80%. If there was a surprise, it is more likely to be to the upside than the down.”
Notably, our year ahead view is now not dissimilar to the market. The New Year’s run of more positive global and domestic data has seen the OIS market moved from pricing in 10bps of RBNZ rate cuts at the end of last year, to pricing around 15bps worth of hikes (over the coming 12 months). Along with January’s sizeable global bond market selloff, this underpinned the 20bps increase in NZ 2-year swap yields over the month.