RBNZ: Market pricing 98% chance of OCR cut in August - Westpac

Imre Speizer, Research Analyst at Westpac, notes that the market pricing for an RBNZ OCR cut in August accelerated further last week and now stands at a 98% chance of an 11 August cut.

Key Quotes

“Softer CPI data and the announcement of further macroprudential measures likely to cool the housing market a little have left us in no doubt that the RBNZ will cut the OCR to 2% in August. Indeed the RBNZ is also likely to signal it’s willing to go even lower than 2% if the exchange rate remains strong.

The RBNZ made no bones about the deteriorating inflation outlook in their hurriedly scheduled Economic Update released last Thursday. The one page statement bluntly stated that the “outlook for inflation has weakened since the June Statement.” The softer inflation outlook is largely due to the TWI which remains well above its June level, which is making it “difficult for the Bank to meet its inflation objective”.

Consequently, the RBNZ sounded even more dovish about the path for interest rates over the year ahead than they were back in June, commenting that “it seems likely that further policy easing will be required”. The RBNZ didn’t mince its words when it said a “decline in the exchange rate is needed”. With such unequivocal guidance, it’s unsurprising that markets have reacted to the past week’s developments so decisively.”