The RBNZ kicks for touch

Westpac Institutional Bank Team Westpac Institutional Bank

As expected, the Reserve Bank kept the Official Cash Rate unchanged at 1.00% at its September interest rate review, and left the door open for possible future OCR reductions. But while the RBNZ is open to another cut if conditions warrant, their latest policy statement didn't give the impression that they have plans to do so at the upcoming November policy meeting. We are sticking to our forecast that the RBNZ will cut again in November, but we now consider it a close call that will depend on the evolution of the economy over the next few weeks.

Reserve Bank kept the Official Cash Rate unchanged at 1.00% at its September interest rate review, and left the door open for possible future OCR reductions. But while the RBNZ is open to another cut if conditions warrant, their latest policy statement didn't give the impression that they have plans to do so at the upcoming November policy meeting. We are sticking to our forecast that the RBNZ will cut again in November, but we now consider it a close call that will depend on the evolution of the economy over the next few weeks.

As expected, the Reserve Bank left the OCR unchanged at 1.00% at its September interest rate review. Importantly, while the RBNZ noted that "there remains scope for more fiscal and monetary stimulus, if necessary," they don't appear to be in any rush to cut rates again. In fact, the tone of the press statement and accompanying minutes, as well as a subsequent speech from Governor Orr, indicated that the RBNZ think their actions to date may be enough. Their description of the outlook noted that although economic growth is currently slow, OCR cuts to date have led to lower lending rates and a lower exchange rate. And they continue to expect that monetary and fiscal stimulus will generate a pickup in domestic demand over the coming year.

So where to next for the OCR? Back in August, when the RBNZ last published detailed economic projections, their forecasts showed the OCR reaching a low of 0.9%, implying a roughly 50 / 50 chance of one more cut. That means some form of negative data surprise will be needed to prompt a November rate cut.

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Westpac Institutional Bank Team

Westpac Institutional Bank

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