RBNZ: Outlook more interesting than rate cuts – Commerzbank

When the Reserve Bank of New Zealand (RBNZ) started cutting rates in August this year, it did not surprise anyone, Commerzbank FX analyst Volkmar Baur notes.

RBNZ to announce the rate decision on Wednesday

“It cut the cash rate by 25 basis points. However, the indication that a move of 50 basis points was being seriously considered did surprise some. As a small open economy, New Zealand is often one of the first to recognize changes in the global economy. And more often than not, the central bank is not shy about responding to changing circumstances. This summer, the RBNZ's hint of a 50 basis point cut proved to be a harbinger for the Fed, which surprised markets by cutting rates by that amount in September.”

“And at its last meeting in October, the RBNZ followed up its August hint with a 50 basis point cut. Tomorrow morning, the RBNZ will hold its last policy meeting of the year, and once again, the RBNZ's statement may be more interesting than the decision itself. The market is pricing in a 50bp move and the majority of economists agree, according to the Bloomberg survey. However, what the central bank has to say about the increased uncertainties in the global trading system and thus the global growth and inflation outlook is likely to be more decisive.”

“Looking beyond tomorrow, the market is currently pricing in further significant moves from the RBNZ over the coming months. Another 50bp cut is almost fully priced in for the next meeting in February, another 25bp in April and a total of 150bp (6 steps of 25bp) by the summer. I think this is justified given the recent softening in inflation and economic growth. However, if the RBNZ were to focus on heightened international risks and their impact on inflation in New Zealand, the market might be forced to reconsider.”