RBNZ will not hike until 2019 - Westpac

As we’ve noted before, the RBNZ’s projections already imply that OCR hikes are a long way off. 

Key Quotes:

"Our forecasts are not too dissimilar, we don’t expect a hike before 2019.

In contrast, market pricing is still consistent with an OCR hike by August next year, and has at times implied an even earlier start to rate hikes. 

We think that developments since the last OCR review will give the RBNZ even less reason to contemplate the idea of rate hikes. June quarter inflation was lower than expected, and some temporary factors are likely to keep inflation below the 2% target midpoint for at least another year."

In addition, the housing market is slowing much faster than the RBNZ assumed, which is likely to have knock-on effects for the strength of domestic demand. Finally, the New Zealand dollar has strengthened significantly in recent weeks. This is largely a product of US dollar weakness and may prove to be transitory. But if sustained, it will further undermine the outlook for inflation over the coming year.

Consequently, we think that financial markets are more vulnerable to a weak outturn in next week’s labour market update, which is one of the last key pieces of economic information ahead of the RBNZ’s Monetary Policy Statement on 10 August. 

Even a stronger than expected result is unlikely to see the RBNZ contemplate an OCR hike within the next year, whereas a weak result would see markets push out the expected timing of rate hikes."