30 Apr 2015
RBNZ confirms easing bias - BNZ
FXStreet (Bali) - Stephen Toplis, Economist at BNZ, notes that the RBNZ has confirmed an easing bias today, although Toplis adds that the hurdle remains high.
Key Quotes
"The RBNZ confirmed today that it has a strengthening bias to ease. Not only might it now “consider” lowering interest rates but it asserts that “it would be appropriate to lower the OCR if demand weakens, and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target”.
"The direction of intent is clear but the hurdle, in our view, remains high. And, while we acknowledge the growing risk of a rate reduction, we stick, for now, with our call that rates will not decline."
"Be that as it may, we do expect GDP growth to slow and for that growth to be lower than the RBNZ anticipates. But we think the softening will be accompanied by a weakening in the exchange rate that will offset the disinflationary impact of the slowdown leaving the RBNZ’s projected inflation track largely unchanged."
"We also believe inflation expectations will fall, as headline inflation remains very low for an extended period of time but we doubt that wage and price setting behaviours will decline so much that they become inconsistent with the inflation target."
"Most importantly, even if behaviours shift, the RBNZ states that outcomes would have to “settle” at low levels. This implies that the RBNZ would need several observations through time before it responded to any such change in behaviour. Consequently, any rate cut will be later rather than sooner."
Key Quotes
"The RBNZ confirmed today that it has a strengthening bias to ease. Not only might it now “consider” lowering interest rates but it asserts that “it would be appropriate to lower the OCR if demand weakens, and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target”.
"The direction of intent is clear but the hurdle, in our view, remains high. And, while we acknowledge the growing risk of a rate reduction, we stick, for now, with our call that rates will not decline."
"Be that as it may, we do expect GDP growth to slow and for that growth to be lower than the RBNZ anticipates. But we think the softening will be accompanied by a weakening in the exchange rate that will offset the disinflationary impact of the slowdown leaving the RBNZ’s projected inflation track largely unchanged."
"We also believe inflation expectations will fall, as headline inflation remains very low for an extended period of time but we doubt that wage and price setting behaviours will decline so much that they become inconsistent with the inflation target."
"Most importantly, even if behaviours shift, the RBNZ states that outcomes would have to “settle” at low levels. This implies that the RBNZ would need several observations through time before it responded to any such change in behaviour. Consequently, any rate cut will be later rather than sooner."