RBNZ: statement was less dovish than expected - Westpac

Analysts at Westpac explained that the RBNZ’s Monetary Policy Statement this morning kept the OCR on hold at 1.75%, as was widely expected.

Key Quotes:

"Compared to market expectations, the statement was less dovish - there were no changes to either the OCR forecast or the guidance language

The OCR forecast, which had previously shown a rise in the OCR to 2.0% by Q1 2020, was unchanged. Markets had expected that uptick to be removed.

The key policy guidance paragraph was unchanged: “Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”

The NZD exchange rate narrative was strengthened only slightly: “The trade-weighted exchange rate has increased since the May Statement, partly in response to a weaker US dollar. A lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth.”

That compares with June’s: “The trade-weighted exchange rate has increased by around 3 percent since May, partly in response to higher export prices.  A lower New Zealand dollar would help rebalance the growth outlook towards the tradables sector.”

Markets have initially deemed the announcement slightly more hawkish than expected. NZD/USD rose from 0.7335 to 0.7370. AUD/NZD fell from 1.0750 to 1.0710. 2yr swap rate rose from 2.17% to 2.19%."