RBNZ: market off base pricing in rate hike in 2019? - Westpac

Analysts at Westpac explained that for the Reserve Bank, the policy prescription remains the same. 

Key Quotes:

"The economy needs to be allowed to continue to grow and gradually use up its spare capacity, in order for inflation to settle around the 2% target midpoint on a sustained basis. And that means keeping interest rates at low levels for an extended period. 

The June quarter CPI is the last major piece of data before the RBNZ starts to prepare its August Monetary Policy Statement. (The June quarter labour market figures are released in early August, but not in time to make it into their forecasting process.) 

Recent developments have generally been of the soft side: inflation was lower than forecast, the New Zealand dollar has strengthened, and the housing market is cooling down much faster than the RBNZ expected. If the RBNZ was “firmly neutral” in its last review, it is hardly going to be mulling the timing of interest rate hikes this time around. 

We think that the market is off-base in pricing in an OCR hike for next year, even if the timing has been pushed out from June to August since the CPI figures. In contrast, we don’t expect an OCR hike before 2019, and that sort of horizon is too far out to be specific about the timing."