RBNZ: Moving on the dovishness – Standard Chartered

Standard Chartered analysts note that the Reserve Bank of New Zealand (RBNZ) clearly pivoted towards an easing bias at the March meeting.

Key Quotes

“Governor Orr has since reiterated the central bank’s easing bias (in interviews), although he noted that a mixed picture – high terms of trade and capacity constraints versus below-target inflation and slowing global economic growth – makes the next rate decision difficult.”

“Orr also said the RBNZ is watching quarterly inflation and labour-market data, but added that his real desire was not to continuously wait for one more print to decide, implying that the May meeting is essentially ‘live’.”

“We now expect the RBNZ to cut the official cash rate (OCR) to 1.5% from 1.75% in May; we previously expected it to keep rates on hold. The weak Q1 CPI headline inflation print provides an opportunity for the already dovish RBNZ to cut the OCR, in our view.”

“We believe the RBNZ’s dovishness stems from concerns over global growth and poor business sentiment. Business confidence fell in March to the weakest since September 2018 and the manufacturing and services indices dropped to the lowest in eight and nine months, respectively. This likely reinforces concerns about low business sentiment weighing on domestic spending.”

“However, we think this will be a pre-emptive cut and is unlikely to be the start of an easing cycle. Our call for a rate cut in May is due to the RBNZ’s dovishness on external headwinds; we maintain our view that a sharp downturn in growth is unlikely.”