RBNZ: Market pricing for November OCR cut has firmed – Westpac

Imre Speizer, Research Analyst at Westpac, notes that the market pricing for a RBNZ’s November OCR cut has firmed over the past week, from 68% to 84%.

Key Quotes

“RBNZ Assistant Governor McDermott this week reminded all that another cut was in the pipeline, by including the September meeting’s policy guidance sentence in a speech he gave on inflation.

Yes, NZ economic activity is strong, and the NZD is starting to weaken. But inflation remains stubbornly low - the Q3 CPI update this Tuesday will probably print somewhere in the 0.0%-0.2% range - and well outside its target range of 1%-3% (with an emphasis on the 2% midpoint).

We do not expect the RBNZ to delay the signalled rate cut until the following meeting in February, partly because the gap between the November and February meetings (under the new schedule) is unusually large. After November, the RBNZ should remain on hold at 1.75% for some time, but needs to keep an easing bias dangling if it wants to avoid an adverse market reaction (recall the Dec 2015 statement cut the OCR but also declared the easing cycle probably over, which caused rises in 2yr swap rates by 18bp and the NZD by 3c in the ensuing weeks).”