RBNZ: Wheeler’s swan song falls flat – TDS

The RBNZ left the official cash rate (OCR) at 1.75% and the cash rate profile was also left unchanged, and the first increase is not expected until H2 2019 as per expectations points out the research team at TDS.

Key Quotes

“The reference to the (rising) exchange rate was a near-repeat of June, whereby “A lower NZD is needed to increase tradables inflation and help deliver more balanced growth”.

“The NZD is marginally higher on the lack of bearish tones, was $US0.7338 now $US0.7358. TWI a little higher at 77.77. OIS 1yr curve a little steeper, August OIS rising from 74% priced for one rate hike to 94%. With 2yr swaps at 2.18%, we see further upside from here.”

“While we anticipate a definitive shift in tone from the Bank under Governor Spencer, an out of consensus view, we do not expect too much for his first OCR Review on September 28. Instead, we look for the November 10 MPS to see a clear tightening bias.”

“In his last Press Conference, Wheeler emphasised that low wage settings have been about past low inflation outcomes rather than being forward looking. This is behind the Bank not focussing on inflation expectation trends at present.”