RBNZ delivers 25bp cut as expected - TDS

Research Team at TDS, notes that the RBNZ cut the Official Cash Rate (OCR) by -25bp to 1.75%, dropped its explicit easing bias and effectively signalled the end of the easing cycle.

Key Quotes

“This cut was widely expected, well priced, but after the market dislocation in the wake of the unexpected election of U.S. President Trump, a slightly more dovish tilt was expected today. The Bank’s prior explicit easing bias was replaced with an RBA-style neutral tone “Our current projections … indicate that policy settings, including today’s easing, will see growth strong enough to have inflation settle near the middle of the target range". 

"We remain of the view that it was too soon to switch to an RBA-like neutral stance.  OIS short-term is now flat to cash and 80% priced for a hike by November 2017, hence the steeper swap and bond curves. RBNZ’s GDP forecasts were significantly upgraded to be a strong 3.7% for March year 2017 (vs prior 3.4%).  Indeed, they are hinting that the economy is coping well with the exchange rate at current levels and sending the signal that no further cuts are needed. We see the cash rate remaining at 1.75% throughout 2017."

"RBNZ Assistant Gov. McDermott later in the day highlighted that the Bank is worried about the impact of the NZD, which was seen as ‘too high’. He reiterated that the Bank will cut if needed and that the risk for rates is still to the downside.  Mention of the word ’intervention’ pressured the NZD as well (although was also mentioned in Wheeler’s press conference).”