RBNZ: Market pricing 100% chance of a hike in Mar 2018 - Westpac

Imre Speizer, Research Analyst at Westpac, explains that market pricing for the RBNZ has been pared but remains upbeat, with the next hike fully priced for March 2018.

Key Quotes

“The RBNZ’s OCR Review on Thursday presents significant risks to such pricing. A more dovish tone (vs Feb) would push rates slightly lower, while a more hawkish tone would cause a large rise in rates.”

“The key changes since Feb are inflation (higher), global growth (arguably stronger), NZD TWI (1% lower), housing (weaker), dairy (weaker), and economic growth (slower). The net effect should be a slightly more dovish tone.”

“In its February MPS, the RBNZ left the OCR unchanged and pointedly moved away from an easing bias to a more neutral stance. And in a speech two weeks ago, the Governor reiterated that “we consider the risks evenly balanced in respect of the OCR”.”

“Is there any reason to expect a change in that assessment at next Thursday’s OCR review? Given the absence of a full forecasting round, and the limits of what can be conveyed in a one-page statement, we suspect the message will be largely unchanged this time. But we’d emphasise that the balance of economic news in recent weeks has been on the softer side, making the case for an OCR increase look even more distant.”

“The issue for the RBNZ is not that the economy is slowing; the underlying picture looks pretty steady, with growth running at what we’d characterise as ‘average’. But the RBNZ needs more than ‘average’ growth to meet its inflation target. The risk is that the economy simply doesn’t have enough puff to generate the domestic price pressures that the RBNZ is hoping for.”