NZIER’s Monetary Policy Shadow Board see a no-change decision for Wednesday

It's RBA and RBNZ week this week and we have this from NZIER’s Monetary Policy Shadow Board who have lowered their recommendation for the OCR but remained centred on a no-change decision for Wednesday:

There was a wide range of views this time, and NZIER Shadow Board members distinguished between their views on what they think the Reserve Bank will do, versus what it should do. Nonetheless, there was a stronger easing bias amongst the NZIER Shadow Board, relative to June.

“The Reserve Bank noted a lower OCR may be needed given it saw downside risks around the employment and inflation outlook. The Reserve Bank’s concern, combined with recent activity indicators showing a further weakening in business confidence and some slowing in demand, means that at least one further OCR cut is likely.

The majority of the NZIER Shadow Board still believes it is appropriate to leave the OCR on hold at this meeting. There was scepticism amongst some Board members that further monetary policy easing would boost activity and inflation, and undesired consequences from interest rates being too low was also highlighted.” said Christina Leung, Principal Economist at NZIER.

FX implications

Markets, on the other hand, are not so convinced on this no change outlook. The market is in fact certain that the RBNZ will cut the OCR by 25bp (to a record low of 1.25%). This means, on a no change, the bird is likely to move to the topside. However, its wings should be clipped when moving between the 50% and the 78% Fibo levels of the recent highs and lows for the month so far considering trade wars and the likelihood of rate cuts down the line.