Westpac Institutional Bank Team
Westpac Institutional Bank
For some time the big story in the world of economics has been plunging global oil prices, the soft global economy, and the resulting low rate of inflation. Last week the Reserve Bank of New Zealand had its opportunity to pass judgement on the situation.
The RBNZ opted to omit any bias towards hiking the OCR, and instead issued deadpan neutral guidance on future OCR moves, with the following paragraph:
“In the current circumstances, we expect to keep the OCR on hold for some time. Future interest rate adjustments, either up or down, will depend on the emerging flow of economic data.”
The Reserve Bank’s inclusion of the possibility that the next move in the OCR could be down was very significant to markets. Central banks around the world have been easing monetary policy, and financial markets have been looking for signs that the RBNZ might join the club. This week’s OCR review was taken as encouragement by those looking for cuts – market pricing now implies around 20 basis points of OCR cuts this year, which is equivalent to a 40% chance of two OCR cuts at some point during the year.
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