RBNZ: A statement of neutrality – Westpac

This morning the Reserve Bank once again left the Official Cash Rate unchanged at 1.75%, notes Michael Gordon, Acting Chief Economist at Westpac.

Key Quotes

“As we expected, the RBNZ seems to have taken developments over the last six weeks as neutral for monetary policy, and today’s statement ended on the same note as the last several statements: “Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”

“While we expected the RBNZ to largely cover the same ground as its May Monetary Policy Statement, we saw a risk that it might use today’s statement to reinforce what a ‘neutral’ stance actually means – namely, that rate cuts are just as likely as hikes. But with no explicit reference to rate cut scenarios in today’s statement, there was a small relief bounce in the New Zealand dollar, which rose about 30 points to 0.7250. Market interest rates were unmoved.”

“Our view remains that the OCR will remain on hold through 2017 and 2018. In that sense, we’re closer to the RBNZ’s view than to the wider market, which is still pricing in an OCR hike by mid-2018. Given that the RBNZ expects inflation to be testing the lower end of the 1-3% target range again by early 2018 (and recent developments have made this more likely), this seems like an unlikely timing for a tightening of monetary policy.”