RBNZ: Next move is down - TDS

Annette Beacher, chief Asia-Pacific macro strategist at TD Securities, points out that the RBNZ has left the cash rate at 1.75% as widely anticipated, but the shift in forward guidance to an explicit easing bias "the more likely direction of our next OCR move is down" shocked analysts and the markets alike.

Key Quotes

“After weeks of no on-the-record communication, this shift in stance was a hand grenade wrapped in a few thin paragraphs: " .. global economic outlook has continued to weaken ... including key trading partners Australia, Europe, and China ... central banks ease[d] their expected monetary policy stances, placing upward pressure on the NZD. Domestic growth slowed ... softness in the housing market and weak business investment".”

“A shift to an easing bias at an OCR Review was a major dovish surprise for the markets. The NZD collapsed from $US0.6910 to sub-$US0.68 and 2y swap rates briefly slumped by over 20bps to a fresh record low of 1.60%.”

“Announcing an easing bias today is questionable: (1) a few paragraphs supported the shift, not updated forecasts, and no press conference to explain; (2) we are days away from the Governor's presentation on Friday on the new MPC process (which is likely to announce the composition of the Monetary Policy Committee); and (3) the first official MPC board meeting will be operational for the next OCR Review on 8 May.”