RBNZ to keep the OCR on hold at 1.75% - Westpac

Imre Speizer, Research Analyst at Westpac, expects the RBNZ to keep the OCR on hold at 1.75% at Thursday’s Monetary Policy Statement, but with a stronger signal that the next move will be up.

Key Quotes

“It will need to acknowledge how conditions have changed in the last three months, with notable positives being the jump in inflation, drop in NZD TWI, and higher dairy prices. These more than offset the cooler housing market and Q1 GDP disappointment. That said, it’s still some way from a tightening cycle since inflation is unlikely to stray too far from the 2% midpoint target during the year ahead.”

“We expect guidance to be along the lines of: “Monetary policy will continue to be accommodative, to ensure that medium-term inflation remains near the 2 percent midpoint of the Reserve Bank’s target range.”

“In addition, we expect the OCR projections to be shifted in a hawkish direction, implying a rate hike in late 2018 (compared to late 2019 in March’s MPS).”

“This outcome (we assign a 60% chance) forms our central scenario, which should result in no material change to the NZD or swap rates.”

“Our hawkish scenario (25% chance) sees a more aggressive shift in the OCR track to imply an early-2018 hike. NZD/USD could rise by 1.5c-2c, and the 2yr swap rate by 15bp.”

“Our dovish scenario (15% probability) sees only a modest shift in the OCR track to imply an early 2019 hike. NZD/USD could fall by 0.5c, 2yr swap rates by 5bp.”