28 Jan 2016
NZD: RBNZ sentiment unchanged - BNZ
FXStreet (Delhi) – Research Team at BNZ, suggests that the RBNZ today played financial markets with a straight bat and while acknowledging that uncertainties are again on the rise, the Bank adhered to its stance that nothing needs doing any time soon.
Key Quotes
“The cash rate was kept at 2.5% but, in acknowledgement of where the greater risks lie, the RBNZ maintained its relatively strong easing bias. Importantly, though, the Bank spent some time highlighting why rates should not be cut now.
In particular, this was the first time (that we can remember) that the RBNZ has specifically referred to core inflation in its OCR/MPS press statements. In so doing, it noted that “annual core inflation . . . . is consistent with the target range at 1.6%”. It also went on to say that “inflation expectations remain stable”. The combination of these statements is a very strong warning to all and sundry that the RBNZ will not pander to pressure to lower its cash rate just because headline inflation remains low.
Equally, it is a reminder that if headline inflation stays low and reduces inflation expectations to the extent that economic behaviours threaten to push the core rate down further then the RBNZ will respond to this by cutting rates. Hence the statement “some further policy easing may be required over the coming year to ensure that future average inflation settles near the middle of the target range”.
We remain of the view that it is more likely that the RBNZ will remain on hold for the foreseeable future, rather than cut, but given the stated easing bias and the obvious risks that prevail it is easy to justify current market pricing and betting against it is unlikely to offer great reward in the very near future. However, as we move closer to the March review, positioning for a no-March-cut scenario should become increasingly attractive.
As for the NZD, our view remains the same – it’s got further to fall yet.”
Key Quotes
“The cash rate was kept at 2.5% but, in acknowledgement of where the greater risks lie, the RBNZ maintained its relatively strong easing bias. Importantly, though, the Bank spent some time highlighting why rates should not be cut now.
In particular, this was the first time (that we can remember) that the RBNZ has specifically referred to core inflation in its OCR/MPS press statements. In so doing, it noted that “annual core inflation . . . . is consistent with the target range at 1.6%”. It also went on to say that “inflation expectations remain stable”. The combination of these statements is a very strong warning to all and sundry that the RBNZ will not pander to pressure to lower its cash rate just because headline inflation remains low.
Equally, it is a reminder that if headline inflation stays low and reduces inflation expectations to the extent that economic behaviours threaten to push the core rate down further then the RBNZ will respond to this by cutting rates. Hence the statement “some further policy easing may be required over the coming year to ensure that future average inflation settles near the middle of the target range”.
We remain of the view that it is more likely that the RBNZ will remain on hold for the foreseeable future, rather than cut, but given the stated easing bias and the obvious risks that prevail it is easy to justify current market pricing and betting against it is unlikely to offer great reward in the very near future. However, as we move closer to the March review, positioning for a no-March-cut scenario should become increasingly attractive.
As for the NZD, our view remains the same – it’s got further to fall yet.”