RBNZ: November and February as the likely strike points for next rate cuts - BNZ

Craig Ebert, Senior Economist at BNZ, suggests that they had formally delayed the timing of the two further RBNZ OCR reductions and now see November and February as the likely strike points.

Key Quotes

“This is rather than the September/November combination we thought the RBNZ would provide scope for in its August Monetary Policy Statement (MPS). We still see an OCR low of 1.50% just that it arrives a bit later. Importantly, this assumes the Bank will follow through with its strong easing signals – consistent with the CPI inflation (expectations) battle it has indicated is crucial to it, amid a strong currency.

We have not delayed our OCR sequencing because of any change in our base view of the economy (or CPI inflation, for that matter). It’s essentially because of recent rhetoric from RBNZ officials. In particular, Assistant Governor, John McDermott’s interviews to various newswires, getting across the message that the Bank will defer any further rate reduction until the occasion of November’s MPS, even though the Bank was still demonstrably dovish (more so than the market might have taken from the August MPS, initially).

Of course, we continue to stress that the Reserve Bank is, more generally, at risk of cutting the cash rate far too much – if, indeed, it hasn’t done so already. Our amended OCR view is about what we think the NZ central bank will do as opposed to what we think it should do.

But if the RBNZ wanted any excuse to delay further OCR reduction until November – when the framework it’s promoting argues for a more immediate and aggressive easing – then it could find it in recent domestic news.

And, despite increased evidence of a robust real economy and firming inflation undercurrents, the RBNZ appears to be hinging an awful lot on its headline CPI forecasts and peoples’ expectations thereof. Downplayed is the (PTA) flexibility that the RBNZ quite rightly emphasized earlier this year. It now seems a pitched battle about lifting headline CPI inflation, come what may. As for the stubbornly strong currency, as much as this might keep suppressing tradables inflation, it is concurrently reflecting New Zealand’s relative economic health. Therein lays the irony.”