Analysts at ANZ said that the RBNZ’s decision to cut the OCR today was of course against our own view.
Key Quotes:
"But when all is said and done, we can’t really quibble with it. In many ways the cut was of last week’s ECB-style easing; a cut was delivered, but it was of the hawkish variety.
What is quite clear from the tone of the statement and spirit of the projections is that there is now far more balance in the RBNZ’s thinking than in prior statements. The 90-day bank bill profile is flat from here, and the scenarios presented were both of the upside and downside variety.
The RBNZ’s economic assessment was similar to ours. The economy is picking up and inflation the same over time as capacity is absorbed. Such a central track does not require rates below pre GFC levels. We concur with that.
To be fair, a soft easing bias was retained, with the Bank stating that it “will reduce rates if circumstances warrant” and that this will be dependent on the flow of economic data. But it now appears clear that the hurdle for additional easing is reasonable high.
Despite the impact of the stronger NZD, the RBNZ retain a confidence in the fact inflation will rise from here. In particular, the RBNZ retain a faith that an improvement in growth will see non-tradable inflation lift from current low levels.
The RBNZ presented four factors it is watching closely, which included migration and consumer behaviour on the upside, and E Nino and a global shock on the downside. We’d add a fifth, that being global funding markets. If these deteriorate, then the RBNZ will be back at the table.
The NZD has reacted by marching up. We’d expect more over the coming weeks given improvement in the tenor of local data and near fully priced expectations towards the Fed. That will potentially become a sticking point given the TWI is already trading 3 big figures above what the RBNZ is assuming.
For now we are projecting an extended period of stability in the OCR. And while – like the RBNZ – we have some faith that improving economic momentum will eventually flow through into a gradual lift in domestic inflation, the global backdrop, structural forces affecting the inflation process and the trajectory for the NZD leave the risks skewed toward the RBNZ perhaps having to do more next year."
Key Quotes:
"But when all is said and done, we can’t really quibble with it. In many ways the cut was of last week’s ECB-style easing; a cut was delivered, but it was of the hawkish variety.
What is quite clear from the tone of the statement and spirit of the projections is that there is now far more balance in the RBNZ’s thinking than in prior statements. The 90-day bank bill profile is flat from here, and the scenarios presented were both of the upside and downside variety.
The RBNZ’s economic assessment was similar to ours. The economy is picking up and inflation the same over time as capacity is absorbed. Such a central track does not require rates below pre GFC levels. We concur with that.
To be fair, a soft easing bias was retained, with the Bank stating that it “will reduce rates if circumstances warrant” and that this will be dependent on the flow of economic data. But it now appears clear that the hurdle for additional easing is reasonable high.
Despite the impact of the stronger NZD, the RBNZ retain a confidence in the fact inflation will rise from here. In particular, the RBNZ retain a faith that an improvement in growth will see non-tradable inflation lift from current low levels.
The RBNZ presented four factors it is watching closely, which included migration and consumer behaviour on the upside, and E Nino and a global shock on the downside. We’d add a fifth, that being global funding markets. If these deteriorate, then the RBNZ will be back at the table.
The NZD has reacted by marching up. We’d expect more over the coming weeks given improvement in the tenor of local data and near fully priced expectations towards the Fed. That will potentially become a sticking point given the TWI is already trading 3 big figures above what the RBNZ is assuming.
For now we are projecting an extended period of stability in the OCR. And while – like the RBNZ – we have some faith that improving economic momentum will eventually flow through into a gradual lift in domestic inflation, the global backdrop, structural forces affecting the inflation process and the trajectory for the NZD leave the risks skewed toward the RBNZ perhaps having to do more next year."
