RBNZ: No fireworks offered - Westpac

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

Key Quotes

“All of this was widely expected. Accordingly, there was little market reaction.”

“The key policy guidance paragraph stated: “Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.” This is identical to February’s policy paragraph.”

“The NZD exchange rate narrative was changed to: “The trade-weighted exchange rate has fallen 4 percent since February, partly in response to weaker dairy prices and reduced interest rate differentials. This is an encouraging move, but further depreciation is needed to achieve more balanced growth.”

“This arguably shows slightly less concern about the level of the NZD than February’s narrative: “New Zealand’s financial conditions have firmed with long-term interest rates rising and continued upward pressure on the New Zealand dollar exchange rate. The exchange rate remains higher than is sustainable for balanced growth and, together with low global inflation, continues to generate negative inflation in the tradables sector. A decline in the exchange rate is needed.”

“Market reaction was muted. NZD/USD fluctuated between 0.7040 and 0.7070 but is back at 0.7060 which is where it was just before the announcement. AUD/NZD is unchanged at 1.0880, 2yr swap rates unchanged at 2.29%, and 10yr rates unchanged at 3.45%. The implications of today’s announcement for market pricing should be neutral.”