The RBNZ kept its policy rate unchanged at 2.25%, against our expectations, but maintained a dovish policy stance, stating that “further policy easing may be required to ensure that future average inflation settles near the middle of the target range”.
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Overall, the statement continues to suggest that the RBNZ is likely to cut rates in the near future because of the deterioration in inflation expectations, the strong NZD and deterioration in the global outlook. Moreover, it is also evident that in the RBNZ views most of the risks to the outlook as being to the downside.
With all this in mind, we think it looks very likely that the RBNZ will cut rates. The timing will depend on incoming data—particularly inflation expectations, the level of the exchange rate and dairy prices—but we believe a cut at the June meeting looks likely.