RBNZ unanimously expected to leave the OCR at 1.75% - TDS

The RBNZ is unanimously expected to leave the Official Cash Rate (OCR) at 1.75% this Thursday and the Bank will also be releasing updated GDP and CPI projections with its quarterly Monetary Policy Statement, and more crucially, its OCR projections through to end-2020, according to analysis team at TDS.

Key Quotes

“The dominant theme in New Zealand markets right now is policy uncertainty, especially what form the RBNZ ‘dual mandate’ will be, weighing down the NZD and flattening the bond/swap curve.”

“While the RBNZ staying the course during this period of political uncertainty is the default view of consensus, we beg to differ. The RBNZ’s 2% mid-point mandate remains in play until the new Governor assumes the role in late March 2018. If the Bank chooses to remain mute for several months, it risks being well behind the wage and inflation curve.”

“An unchanged OCR at 1.75% this week and through to mid-2018 is unanimous consensus and reflected in the OIS strip. However, after upside surprises in inflation, employment and wages growth, combined with the slump in the exchange rate, we think the market is asleep at the wheel, and not prepared for the Bank under Governor Spencer to confirm that the next move remains up for the cash rate.”

“The local markets do not expect the RBNZ to be hawkish while house prices are faltering. However, the recent decline in Auckland house prices only reflects the effectiveness of macroprudential tools deployed to date.”