21 Jan 2015
NZ inflation falls below RBNZ’s target – Westpac
FXStreet (Barcelona) - According to the Research Team at Westpac, the 29th January meeting of RBNZ might result in the central bank providing some hints of a tightening, with NZ CPI falling below the RBNZ’s target band, shrinking by 0.2% to 0.8%.
Key Quotes
“NZ inflation has fallen below the RBNZ’s policy target band of 1%-3% but markets have not yet priced a material chance of an OCR cut.”
“The December quarter saw the CPI shrink by 0.2% for an annual result of 0.8%. As well as breaching its policy band, it is also below the RBNZ’s forecast for Q4 of 1.0% yoy. It has also caused a reduction in our own forecast for Q1 to 0.1% yoy, well below the RBNZ’s forecast of 1.1%.”
“We expect the RBNZ’s meeting on 29 January to recognise this negative development via reshaped policy language providing the barest hint of tightening.“
“Markets started pricing in rate cuts only last Friday, assigning a 4% probability of a 25bp cut this year. As we write, that probability has increased to 16% (June 2015 meeting OIS is at 3.46%). Should the RBNZ on 29 January switch to a neutral bias, from December’s tightening one, the probabiltiy could easily increase to 40% and 2yr swap rates could fall by 5bp-10bp.”
“The AU leg of the trade is also vulnerable to further downside but it does already have much RBA easing priced in. Cash rate futures imply one 25bp cut by June 2015, and 40bp of easing is priced by February 2016.”
Key Quotes
“NZ inflation has fallen below the RBNZ’s policy target band of 1%-3% but markets have not yet priced a material chance of an OCR cut.”
“The December quarter saw the CPI shrink by 0.2% for an annual result of 0.8%. As well as breaching its policy band, it is also below the RBNZ’s forecast for Q4 of 1.0% yoy. It has also caused a reduction in our own forecast for Q1 to 0.1% yoy, well below the RBNZ’s forecast of 1.1%.”
“We expect the RBNZ’s meeting on 29 January to recognise this negative development via reshaped policy language providing the barest hint of tightening.“
“Markets started pricing in rate cuts only last Friday, assigning a 4% probability of a 25bp cut this year. As we write, that probability has increased to 16% (June 2015 meeting OIS is at 3.46%). Should the RBNZ on 29 January switch to a neutral bias, from December’s tightening one, the probabiltiy could easily increase to 40% and 2yr swap rates could fall by 5bp-10bp.”
“The AU leg of the trade is also vulnerable to further downside but it does already have much RBA easing priced in. Cash rate futures imply one 25bp cut by June 2015, and 40bp of easing is priced by February 2016.”