2 May 2016
RBNZ to deliver one more rate cut, most likely in June - Westpac
Imre Speizer, Senior Market Strategist at Westpac, suggests that the market pricing for the OCR low shifted abruptly following the RBNZ’s slight hawkish shift last week.
Key Quotes
“The RBNZ did not cut as some had expected, neither did it sound any strong warnings about the high NZD. Instead, it appeared to slightly upgrade its outlooks for the international and domestic economies, while still dangling the possibility of further easing. As a result, the market’s chances of a June cut have been reduced from around 80% to 55%, and the terminal low has shifted higher from 1.88% to 1.92%.
For our part, we continue to expect the RBNZ to deliver one more rate cut, most likely in June this year. The outlook for global growth remains underwhelming, the stresses and strains of plunging incomes in the dairy sector are starting to impact further afield, and the high NZ dollar is keeping the handbrake on non-tradables inflation. Headline inflation is set to rise from here, but only gradually, meaning inflation expectations are likely to only lift slowly. Add uncertainty about the transmission between OCR cuts and mortgage rates, and the case for a further rate cut remains convincing.”
Key Quotes
“The RBNZ did not cut as some had expected, neither did it sound any strong warnings about the high NZD. Instead, it appeared to slightly upgrade its outlooks for the international and domestic economies, while still dangling the possibility of further easing. As a result, the market’s chances of a June cut have been reduced from around 80% to 55%, and the terminal low has shifted higher from 1.88% to 1.92%.
For our part, we continue to expect the RBNZ to deliver one more rate cut, most likely in June this year. The outlook for global growth remains underwhelming, the stresses and strains of plunging incomes in the dairy sector are starting to impact further afield, and the high NZ dollar is keeping the handbrake on non-tradables inflation. Headline inflation is set to rise from here, but only gradually, meaning inflation expectations are likely to only lift slowly. Add uncertainty about the transmission between OCR cuts and mortgage rates, and the case for a further rate cut remains convincing.”