RBNZ: OCR forecast was tweaked slightly in a hawkish direction - Westpac

"The RBNZ's Monetary Policy Statement this morning kept the OCR on hold at 1.75%, as was widely expected. The policy guidance paragraph was a repeat of September's, but the OCR forecast was tweaked slightly in a hawkish direction. Markets reacted accordingly," note Westpac analysts.

Key quotes

The RBNZ’s Monetary Policy Statement this morning kept the OCR on hold at 1.75%, as was widely expected. The policy guidance paragraph was a repeat of September’s, but the OCR forecast was tweaked slightly in a hawkish direction. Markets reacted accordingly.

The key policy guidance paragraph today was: “Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”  This is exactly the same as September’s guidance paragraph.

The OCR forecast was upgraded slightly, shifting from 1.8% in June 2019 to 1.9%. It reaches 2.0% in Mar 2020, which is unchanged from the previous statement.

The NZD exchange rate narrative was softened further (it was softened in September), which is understandable given the NZD TWI is 6% below the RBNZ’s forecast: “The exchange rate has eased since the August Statement and, if sustained, will increase tradables inflation and promote more balanced growth.”

That compares with September’s: “The trade-weighted exchange rate has eased slightly since the August Statement. A lower New Zealand dollar would help to increase tradables inflation and deliver more balanced growth.”

Overall, we’d characterise this as the barest of shifts in stance, but certainly more hawkish than market expectations.

NZD/USD initially rose from 0.6925 to 0.6963 in response, and AUD/NZD fell from 1.1085 to 1.1034. We wouldn’t expect much more, indeed these reactions may be pared given the RBNZ changes have been very modest. 2yr swap rates remained unmoved from 2.19%, 10yr swap rates from 3.13%.