RBNZ: No strong reason to shift - BNZ

Analysts at BNZ expected the Reserve Bank of New Zealand to remain on hold. They see global risks starting to pester NZ solidity but enough to keep RBNZ balanced this week. 

Key Quotes: 

“We expect the Reserve Bank to remain reasonably balanced in its policy announcement this Wednesday, while keeping its cash rate at 1.75%. This is not to ignore the downside risks that are accruing – principally global, and notably in manufacturing. More to the point, the NZ economy is (more than?) fully employed, while inflation is middling and not without upside risk. We also note that NZ interest rates already reflect a negative tilt on the Reserve Bank’s cash rate trajectory.”

“A rate cut (of 25 basis points) is nearly fully priced by early next year, if not by the end of 2019. Having said this, the markets are showing reluctance to price in much more easing after that. Also, the appear averse to odds of an OCR cut as soon as the 8 May Monetary Policy Statement (MPS).”

“With this in mind, the markets would probably react more to any dovish speak from the RBNZ this week, than if the Bank maintained a balanced tone.”

“While it remains to be seen what happens on the global front, there is no overwhelming evidence that New Zealand’s economy is greatly suffering from the global headwinds at this stage. Indeed, the nation’s commodity export prices – which are often the first to feel any international chill – are still pretty strong, including in key dairy markets.”

“Also to note, for the record, is the speech that RBNZ Governor, Adrian Orr, is scheduled to deliver on Friday morning, in Wellington. It is about the Bank’s newly minted monetary policy framework. However, the fact that it is to a very general public audience suggests there won’t be much of interest for financial market types. And especially after Wednesday afternoon’s OCR show and tell.”

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