RBNZ: Holds OCR on hold, maintains neutral stance - Westpac

The RBNZ’s OCR Review this morning kept the OCR on hold at 1.75%, maintained a neutral bias, and repeated the message that the OCR is likely to remain on hold for a long time, notes Imre Speizer, Research Analyst at Westpac.

Key Quotes

“The key policy guidance paragraph stated: “Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.” This is identical to May’s paragraph.”

“The NZD exchange rate narrative was changed, noting the NZD’s appreciation is partly justified by fundamentals: “The trade-weighted exchange rate has increased by around 3 percent since May, partly in response to higher export prices.  A lower New Zealand dollar would help rebalance the growth outlook towards the tradables sector.”

“That compares with May’s: “The trade-weighted exchange rate has fallen by around 5 percent since February, partly in response to global developments and reduced interest rate differentials. This is encouraging and, if sustained, will help to rebalance the growth outlook towards the tradables sector.”

“The body of the press release noted the main economic developments since the May MPS, being recent global disinflation, recent slower NZ GDP growth, cooling NZ housing market, Budget stimulus, and temporary uptick in NZ inflation. The Budget stimulus narrative  is new.”

“A few minutes ahead of the announcement, NZD/USD was trading at 0.7227. Fifteen minutes later it is at 0.7252. Similarly, AUD/NZD was 1.0452 before and 1.0417 after. The moderate rise in the NZD probably reflects widely held expectations the risks today were skewed slightly in a dovish direction; in the absence of any dovish surprise, NZD was bought. Swap rates were unmoved, the 2yr at 2.21 and the 10yr at 3.15. The implications of today’s announcement for market pricing should be neutral.”