RESEARCH ROUNDUP: RBNZ Seen Lower for Longer on Kiwi Support
(Bloomberg) -- RBNZ is in no hurry to raise rates even as it acknowledges inflation green shoots as Governor Graeme Wheeler cited international risks in the decision to keep monetary policy “accommodative for a considerable period,” analysts say.
- RBNZ keeps OCR at 1.75%; sees average OCR at 1.9% in 3Q19
- NZD/USD currently down 0.6% to 0.7221
- 2-year IRS fell to 2.335% in initial reaction, lowest since December 14 low of 2.315%
- Click here for link to statement
- ANZ, Cameron Bagrie
- Statement was neutral and as reasonably cautious as it could possibly be, given the growth backdrop; RBNZ is in no hurry to do anything, and shouldn’t be either
- Doubtful market will fully embrace RBNZ’s neutral tone, and expect dips to be fairly shallow; given rising global rates, the curve should steepen
- Cut to tradable inflation forecasts, and headline inflation not projected to hit 2% until mid-2019, are seen as a hat-tip to the important inflation-suppressing impact from a strong NZD
- Clear reminder that NZD is still a highly important input into the RBNZ’s monetary policy deliberations
- Nomura Singapore, Peter Dragicevich
- Intra-day NZD dip reflects positioning adjustment as RBNZ failed to match lofty market interest rate expectations factored in for 2017
- Elevated NZ commodity prices, higher NZ nominal and real interest rates and improving global growth picture should continue to support NZD over the medium-term
- RBNZ stating its stance is now neutral points to potential start of a tightening cycle in 2H 2019
- ASB Auckland, Nick Tuffley
- Continues to see OCR increases as a long way off toward the end of 2018, in contrast to market pricing that favors late 2017/early 2018
- RBNZ is waiting to see what impact President Trump will have
- Central bank does have a full 25bps hike built in by early 2020 and barring a major negative shock, it is unrealistic now for the RBNZ to hold OCR at a stimulatory level indefinitely
- The flagging of a distant tightening is more realistic
- Goldman Sachs, Andrew Boak
- RBNZ is forecasting GDP growth to be ~130bp above potential by 2Q17 and remain above potential over the medium term, and acknowledges that domestic inflation is on track to return to the target while fully embracing the global reflation rhetoric
- Maintains out-of-consensus view for RBNZ to commence the first 25bps rate hike in November 2017
- Risks to RBNZ’s rates forecast remains skewed to the upside
- Shift to a neutral policy stance is an important first step toward the path of normalization of interest rates; opens up possibility for more hawkish steps in coming months
- Barclays, Rahul Bajoria
- No longer expects a rate cut in 2017
- RBNZ to keep rates on hold through 2017, and will only look to start raising rates in 2018 if growth remains high and inflation moves back to midpoint of the target band faster than expected
- If growth continues to recover, the RBNZ’s tolerance of a stronger exchange rate will increase
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Andrew Boak (Goldman Sachs Group Inc/The)
Cameron Bagrie (Anz Natl Bank Ltd)
Graeme Wheeler (Reserve Bank of New Zealand)
Nick Tuffley (ASB Bank Ltd)
Peter Dragicevich (Nomura Holdings Inc)
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