RBNZ: Market pricing in tightening - Westpac

Imre Speizer, Research Analyst at Westpac, notes that the market pricing for the RBNZ continues to imply rate hikes during the next two years.

Key Quotes

“By March 2018 one hike is 100% priced in, while by November 2017 it is 60% priced in.”

“That is at odds with our own forecast that the RBNZ will remain on hold at 1.75% for the next two years, although it is understandable. Markets don’t like to sit still - they want to pre-emptively price in either easings or tightenings. With the RBNZ telling us earlier this month that the easing cycle is probably over, the direction of market pricing is set although it will need endorsement from strong inflation data during the months ahead.”

“We recently upgraded out outlook for the NZ economy for 2016 and 2017. Business confidence and hiring are on the rise, and the pipeline of construction work is particularly strong. Migration, as a major driver of population and GDP growth, is also remaining remarkably strong. And finally, higher dairy prices are helping confidence in the major producer regions. Inflation should eventually come to the party.”