Upcoming RBNZ meeting: on hold but ... - Nomura

Analysts at Nomura explained that the next major NZD-centric event is the RBNZ policy meeting and Monetary Policy Statement (MPS) (both on 11 May). 

Key Quotes:

"No change in policy is broadly anticipated, and while the RBNZ will continue to try and hold the market back from reacting over-zealously and should continue to note its long-held view that a further depreciation in NZD “is needed to achieve more balanced growth”, relative to its current rather downbeat view, the RBNZ should appear more positive and potential flag an earlier start to its tightening cycle.

"The RBNZ currently projects the cycle to start in H2 2019. The RBNZ has been stressing that the balance of risks in the global economy remains skewed “to the downside”, but we think this is too pessimistic. Broader global momentum has improved, despite pockets of geopolitical risks. Moreover, in terms of the domestic outlook, the lower-than-projected NZD trade-weighted index (TWI) and rebound in commodity prices has eased conditions from an external standpoint. When combined with the upside surprise in the Q1 New Zealand CPI inflation print, the RBNZ’s inflation profile should be lifted over 2017 and into 2018.

In contrast to the RBNZ’s current assertion, we believe the macroeconomic backdrop points to the first RBNZ interest rate hike coming through around mid-2018. Although we do not anticipate the RBNZ to make such a large leap at the May 2017 meeting (i.e. from H2 2019 to mid-2018), this is the direction we see the interest rate outlook developing incrementally over coming months. 

The overall bias is for the RBNZ to shift towards the market and not the reverse. We believe the market will continue to price in the prospect of higher New Zealand interest rates in 2018; and a more positive tone from the RBNZ would reinforce this."