Annette Beacher, chief Asia-Pacific macro strategist, points out that the RBNZ left the cash rate at 1.75% as widely anticipated, but the Bank's forward guidance was not as benign as expected, and the repeat of "the next move could be up or down" disappointed the doves.

Key Quotes

“The RBNZ lowered GDP and CPI projections as expected and was not controversial. What was hawkish was the Bank pushing the first 25bp OCR increase from late 2020 to mid-2021, not removing it altogether.”

“The rate cut scenario was also diluted, where global growth disappointment would see the OCR lowered by 50bp.”

“Despite New Zealand’s major trading partners (AUD, CNY and USD) starting the new year with a fresh cautious tone, the RBNZ held its ground. While claiming that the cash rate will be at 1.75% for longer, the forward guidance is still signaling that the next move remains up for the cash rate.”

“OIS has adjusted across the board: an August cut has been dialed down from a 50/50 risk to closer to 30%, and November from 70% to closer to 50/50.”

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