Halister News

(Bloomberg) -- Analysts interpret RBNZ’s policy statement as less-dovish than anticipated after the central bank maintained its benchmark rate hike forecast for 3Q 2019 even as it lowered its inflation projections.

• Kiwi rose as much as 0.5% immediately after release of the policy statement before erasing gains after Governor Wheeler said RBNZ would like to see a weaker exchange rate and FX intervention is always open to the central bank
• 2-year interest rate swap up 1bp to 2.1757% while yield on 10-year note drops 1bp to 2.802%
• OIS market pricing has shifted up slightly, according to Kiwibank; a full rate hike is almost fully priced by September 2018 and an OCR of 2.41% priced in by November 2019, up from 2.35% prior to the statement
• “Monetary policy will remain accommodative for a considerable period,” Wheeler said in a statement after keeping official cash rate at 1.75%

KEY VIEWS

• Capital Economics Sydney, (Paul Dales, chief economist)
  • The reference on “a need for stronger capacity pressure than might otherwise be necessary to generate a given level of inflation” suggests RBNZ will need to keep rates low and let the economy run hot in order to raise inflation back to the midpoint of the 1-3% target
  • Similar to the tack the Fed adopted long before it started raising rates
  • Becoming more likely that rates won’t rise until later than we expect (early 2019) and then will climb slower
• Nomura Singapore (Peter Dragicevich, FX Strategist)
  • Statement is neutral with some tweaks from previous
  • RBNZ notes that growth is “expected to improve” over the horizon; previously stated that the outlook for growth “remains positive”
  • Language on NZD was adjusted, reverting back to the view that a lower NZD “is needed” to increase tradables inflation and help deliver balanced growth
• Goldman Sachs (Andrew Boak, economist)
  • RBNZ retains a clear conviction that inflation will return to the mid-point of the target range over the medium term – but today’s MPS did introduce a slightly greater sense of unease about the higher NZD (“a lower NZD is needed”) and its read-through to tradeables inflation
  • Will review OCR forecast; such strong near-term guidance likely precludes the possibility of a rate hike this year given the backdrop of rising political uncertainty (General Election), leadership transition at the RBNZ, the cooling housing market, and the overnight upward revision by GS to NZD view
• ASB Auckland (Nick Tuffley chief economist)
  • Still expects RBNZ to end up lifting the OCR in early 2019, slightly earlier than its forecasts imply as the central bank underestimates stimulatory impact of recovering dairy sector, and migration inflows
  • RBNZ is relying heavily on non- tradable inflation to drive headline inflation back to 2% as soft global conditions suggest that tradable inflation will remain subdued for some time yet
  • Risk the NZD is firmer over time than the RBNZ assumes, even though it has lifted its 2017 outlook to build in some persistence

To contact the reporter on this story: Michael G. Wilson in Sydney at mwilson176@bloomberg.net To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net Patricia Lui