RBNZ: Market pricing tightening in 2018 – Westpac

Imre Speizer, Research Analyst at Westpac, notes that the market pricing after the RBNZ’s last week cut of the OCR to 1.75% has implied rate hikes ahead.

Key Quotes

“By March 2018 one hike is 100% priced in, while by November 2017 it is 60% priced in. Our economic forecast is at odds with the market, expecting a lengthy period on hold at 1.75%.”

“The November policy statement noted that “current projections and assumptions indicate that policy settings, including today’s easing, will see growth strong enough to have inflation settle near the middle of the target range”. That marks a shift to a much more neutral stance by the RBNZ, after the last few months when it had strongly signalled that “further policy easing will be required.” This does not mean that the door is completely closed with regards to further cuts.”

“The RBNZ’s forecasts suggest that it still see some small possibility of a further easing, with global conditions a key risk. However, that’s certainly not the base case.”