RBNZ: Subtle changes – Westpac

The RBNZ left its bottom-line guidance for monetary policy unchanged and the most important change was an apparent downgrade to the RBNZ’s GDP forecast, due to the stalled construction sector, explains Dominick Stephens, Chief Economist at Westpac.

Key Quotes

“However, the lower exchange rate and stronger global economy were also acknowledged, at least partly counterbalancing lower GDP growth.”

“The RBNZ did not acknowledge the fact that house prices have been much weaker than its previous forecast, presumably because it is wary of a post-election market resurgence.”

“In our view, the weak housing market and stalled construction sector will cause the RBNZ to strike a more dovish tone at the November MPS, unless the exchange rate falls sharply.”

“We remain firmly of the view that market pricing for an OCR hike in 2018 is far too early. We forecast the OCR to remain unchanged until late-2019, with evenly balanced risks to that flat forecast.”