RBNZ: Sitting on a goldilocks economy - TDS

The RBNZ left the cash rate at 1.75% as widely anticipated and left the final 'forward guidance' paragraph unchanged, but near-term GDP and CPI forecasts were revised down, partially explained by lesser fiscal stimulus than previously expected, notes the research team at TDS.

Key Quotes

“The cash rate profile was left unchanged, gradually tightening from mid-2019.”

“While the RBNZ is firmly on hold, despite numerous press conference questions about cutting the cash rate, it is difficult to make judgments about the path of the cash rate while the Bank's mandate and policy process under the Labour coalition government remains unknown. This partially explains why consensus doesn't expect a move on the cash rate until next year.”

“Having said that, our base case for a May hike is under review, and we will publish our updated views on the RBNZ (and RBA) in due course.”

“The NZD slid towards $US0.72 on the near-term forecast downgrades, especially with the 2%-CPI-handle not appearing until H2 2020. The FX team identify numerous signals that suggest another near-term correction can't be ruled out.”

“The OIS strip is 2-5bps lower from mid-year through to early 2019. A +25bp hike by November 2018 is 75% priced.”