RBNZ to keep the OCR on hold at 1.75% - Westpac

Analysts at Westpac expect the RBNZ to keep the OCR on hold at 1.75% at Thursday’s Monetary Policy Statement, but to issue slightly more dovish policy guidance.

Key Quotes

“Developments since the May MPS have been net negative relative to the RBNZ’s forecasts: weaker GDP, inflation, house prices, and a higher NZD; only partly offset by stronger export prices, fiscal policy and migration.”

“We expect the OCR forecast to be flattened (removing the rise in early 2020) but the policy guidance paragraph to be largely unchanged: “Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.” This is probably close to the market’s expected outcome, and forms our neutral scenario (a 65% chance of occurring, we think). In response, 2yr swap rates may fall 3bp, NZD/USD 1/2c or less.”

“Our dovish scenario (30% chance) takes the form of a flattened and lowered OCR forecast, from 1.8% to 1.7%. A commensurate tweaking of the guidance language could be the attachment of: “either up or down” to the end of the final sentence. In response, 2yr swap rates could fall by 12bp, NZD/USD up to 2c.”

“Our hawkish scenario (5% chance) takes the form of an unchanged OCR forecast and largely unchanged guidance language. Markets would be disappointed, and 2yr swap rates could rise by 10bp, NZD/USD around 1c.”