RBNZ broken down: no discernible market reaction to the release - ANZ

Analysts at ANZ explained that at today’s OCR announcement the RBNZ left the OCR at 1.75%, and retained a cautiously upbeat stance and that in Grant Spencer’s last OCR announcement as Acting Governor, the RBNZ kept the message clear and consistent.

Key Quotes:

• The RBNZ remains positive on the growth outlook. Growth is “expected to strengthen, supported by accommodative monetary policy, a high terms of trade, government spending and population growth. House price inflation is “moderate” and the labour market is expected to tighten.
• Downside risks were broadly downplayed: “the outlook for global growth continues to gradually improve” and “equity markets have been strong” albeit more volatile. The downside Q4 GDP surprise was “mainly due to weather effects”. Looking at financial conditions, the NZD remains high and some modest tightening has been seen in funding markets. But the RBNZ did not comment on either of these factors.
• With inflation “forecast to trend upwards” over the medium term (looking through an expected near-term weakening) the RBNZ is treading water with regards to monetary policy. The February MPS forecasts showed the RBNZ is not expecting to tighten monetary policy until the second half of 2019 and we agree with that assessment. 
• But as always, the RBNZ retained a data-dependent stance, as “numerous uncertainties remain and policy may need to adjust accordingly”. The RBNZ’s next move is expected to be a hike, but the RBNZ is being careful to not give that signal prematurely, given the market’s tendency to pre-empt. The February MPS made it clear that the Bank sees risks on both sides. We expect this broad spirit of cautiousness (particularly with regard to the inflation outlook) to continue for some time yet.
• With interest rates on hold this year, OCR decisions have taken a bit of a backseat insofar as the market is concerned. Global financial and political developments, fiscal policy and potential changes to the Policy Targets Agreement and RBNZ governance are instead at the fore. We anticipate the new PTA will be announced sometime over the next few days. If it is as we expect (with the addition of a “full employment” target in some form, and only minor tweaks as regards more flexible use of the inflation target band), the implications for the monetary policy outlook will be limited.
• There will be considerably more interest in the May MPS – the first under the reins of new Governor, Adrian Orr. Barring any significant changes to the dataflow we don’t expect any major changes in the RBNZ’s views, at least until he gets his feet well under his desk.