RBNZ: Neutral is as neutral does - ANZ

Research Team at ANZ explains that as expected, the RBNZ maintained a clear neutral tone at its OCR Review today, holding the OCR at 1.75% and the statement was broadly unchanged from the one delivered in February where changes were made (in response to some recent data surprises), comments were heavily caveated, with surprises discounted.

Key Quotes

“This reinforces that the RBNZ continues to see an outlook shaped by considerable uncertainty and is in no hurry to alter policy (in either direction) as a result. There is no change to our view. We continue to see the next move in the OCR being up, but not until mid-2018.”

“Key points

• The policy assessment was broadly unchanged from the one delivered in February. The RBNZ continue to present as neutral a tone as possible, repeating that “Monetary policy will remain accommodative for a considerable period”.
• The RBNZ did acknowledge some recent data surprises, specifically the soft Q4 GDP growth and also the likely spike in Q1 CPI. However, it is clear that these developments have not changed its overall views. It is looking through these surprises, with the softer GDP due to “temporary factors” and the higher CPI due to some “one off effects”. 
• On the exchange rate, the RBNZ acknowledged its recent fall, but again caveated it by noting that it was in part due to “weaker dairy prices and reduced interest rate differentials”. Importantly, it still believes that “further depreciation is needed”.
• Beyond that, the broad themes highlighted were unchanged. The RBNZ continues to acknowledge the better global backdrop, but note that it contains challenges in the form of spare capacity and geopolitical tension. Despite the soft Q4 GDP figures, the domestic outlook is still judged to be “positive”, with the same support factors from February highlighted again (population growth, accommodative monetary policy, construction and household spending). The RBNZ’s views on the housing market are unchanged. It acknowledged the recent moderation in house price growth, but still feels it is uncertain whether it will be “sustained”. 
• In many ways, the message from the RBNZ is ‘move along, nothing to see here’. The hits and misses relative to its earlier projections are not meaningful enough to alter its views. It is in no hurry to alter policy – the hurdle to sway it from this stance appears high right now.  
• Our view towards the monetary policy outlook is also unchanged. We can assume the Bank still sees an equal chance of the next move being a hike or a cut. However, we don’t hold that same opinion. While we can envisage scenarios where the OCR is cut again (and they largely centre on global shocks), we see a much higher likelihood of a hike, given a tightening labour market, inflation approaching target and strong capacity pressures more generally. That said, the RBNZ can afford to be patient right now, with banks effectively doing its work for it, as seen in lifting retail interest rates. We continue to pencil in the first OCR hike in May 2018.”