RBNZ: on hold until 2019? - Westpac

Analysts at Westpac explained, overall, the RBNZ’s latest forecasts have a lot in common with our own. 

Key Quotes:

"There are some points of difference: for instance, the RBNZ’s terms of trade forecast and the implications for national income, still look a bit anaemic compared to what dairy prices have been doing lately. 

Additionally the RBNZ has been cautious about the degree of fiscal stimulus ahead of the Budget later this month. On the other hand, the RBNZ’s GDP growth forecasts, which were already on the high side of the market, are still stronger than ours. And its forecast of a 5% rise in nationwide house prices this year may still be on the optimistic side – it would require an acceleration from the pace of recent months. 

However, we’re broadly in agreement with the RBNZ’s view that annual inflation will drop back below 2% next year, and that domestic inflation pressures over the medium term are still subdued. 

The economy is not growing at the sort of pace that led to overheating and a surge in inflation in previous cycles. So we are sticking with our call that the OCR will remain on hold until early 2019.

This is earlier than the RBNZ’s projection, but later than what markets have been pricing in – even after this week’s statement, interest rate markets are priced for a hike by mid-2018."