RBNZ reviewed:"Overall, we agree with the spirit of the Statement" - ANZ

Analysts at ANZ noted that the OCR was maintained at 1.75% as expected and said there was never a realistic chance of any other outcome. 

Key Quotes:

"But the statement was neutral. For all intents and purposes the rate profile is flat (a hike is implied by late 2019 – some way away). Positive developments are caveated by cautious language.

Throughout the statement, it appears the RBNZ is at pains to emphasize both positive and negative risks. The global outlook has “improved”, but “major challenges” remain. Inflation is expected to rise, but only “gradually”. Dairy prices have “recovered” but “uncertainty remains”. “Recent moderation in house price inflation is welcome” but may not be sustained.” It’s a constant case of ‘on the one hand... but then on the other’.

The neutrality of the Statement is emphasised by the inclusion of two scenarios: an upside one based on higher export prices (+50bps for the OCR) and a lower one based on weaker consumption growth (-50bps). One up, one down; a signal of how the RBNZ sees the risk profile.

Importantly, the RBNZ reemphasised its flexible approach. It argued that further easing would risk generating unnecessary volatility (as they noted in November), but also – significantly, given market pricing – that premature tightening could “forestall the anticipated gradual increase in inflation”. The latter is a notable addition, probably partly aimed at the NZD. The Bank is in no hurry to do anything, and shouldn’t be either.

Overall, we agree with the spirit of the Statement (neutrality for the OCR, downside global risks, strong NZD and reasonable growth). The only surprise was the demure track for headline inflation (weaker than projected in November), which is clearly on the back of NZD strength. Its tradable inflation forecasts were cut and headline inflation is now not projected to hit 2% until mid-2019! That certainly looks a long way off given what we see across the domestic economy, though it is obviously a hat-tip to the important inflation-suppressing impact that the strong NZD is having. It is a clear reminder that the NZD is still a highly important input into the RBNZ’s monetary policy deliberations."