Imre Speizer, Research Analyst at Westpac expects the RBNZ to keep the OCR on hold at 1.75% at Thursday’s OCR Review, and to repeat May’s neutral policy guidance.
“Developments since the May MPS have been net neutral, stronger export prices and fiscal policy offset by weaker GDP and house prices.”
“We expect the policy guidance paragraph to be unchanged: “Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.” This is probably the outcome markets expect, which means there should be little change to the NZD or swap rates in response.”
“That said, we think there’s a greater chance of a dovish surprise than a hawkish one.”
“A dovish surprise, a 30% chance we think, could take the form of new policy guidance language along the lines of: “there is an even chance of a hike or a cut in the future”. While such phraseology doesn’t indicate anything other than a neutral stance, the elevation of the prospect of easing would unnerve a market which has fully priced in a rate hike by mid-2018. NZD/USD would fall by 0.75c, 2yr swaps rates by 7bp.”
“A hawkish surprise (10% chance) could take the form of concern that recent inflationary pressures may persist longer than previously thought. NZD/USD would rise by 1.0c, 2yr swaps rates by 9bp.”
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