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12 Mar 2015
RBNZ rate cut scenario: Hurdle remains high, but still possible - ANZ
FXStreet (Bali) - The ANZ Economics Team shares their take on the RBNZ outcome, noting that despite the clear neutral tone, they still envisage a rate cut scenario this year even if the hurdle remains high.
Key Quotes
"As widely expected, the Reserve Bank left the OCR on hold at 3.50%. The tone of the statement was neutral (next move for rates being “up or down”), although with a hint of a softer bias by including a rate cut scenario. However, the economic spirit is still upbeat."
"Despite the clear neutral tone, the currency response to today’s decision and commentary (up) is telling. The market obviously needed a lot from the RBNZ to validate recent weakness."
"The RBNZ went further than we expected by including a rate cut scenario. But that is being looked through – it’s not enough for the market. Comments relating to the economy being “strong” are telling. Strong economies do not tend to experience currency weakness on a broad TWI basis."
"The RBNZ may have truncated their 90-day projections so a flat profile is shown, but the nuances in the forecasts were obvious: if their central scenario prevails rates will eventually move up, albeit that this is a long way off."
"Like the RBNZ, our base case is that we are in for a considerable period of unchanged OCR settings (with an eventual resumption of hikes – but not for a very long time). We can envisage a rate cut scenario but the hurdle remains high. However, the market will continue to test a rate cut thesis for another 6 months.
Key Quotes
"As widely expected, the Reserve Bank left the OCR on hold at 3.50%. The tone of the statement was neutral (next move for rates being “up or down”), although with a hint of a softer bias by including a rate cut scenario. However, the economic spirit is still upbeat."
"Despite the clear neutral tone, the currency response to today’s decision and commentary (up) is telling. The market obviously needed a lot from the RBNZ to validate recent weakness."
"The RBNZ went further than we expected by including a rate cut scenario. But that is being looked through – it’s not enough for the market. Comments relating to the economy being “strong” are telling. Strong economies do not tend to experience currency weakness on a broad TWI basis."
"The RBNZ may have truncated their 90-day projections so a flat profile is shown, but the nuances in the forecasts were obvious: if their central scenario prevails rates will eventually move up, albeit that this is a long way off."
"Like the RBNZ, our base case is that we are in for a considerable period of unchanged OCR settings (with an eventual resumption of hikes – but not for a very long time). We can envisage a rate cut scenario but the hurdle remains high. However, the market will continue to test a rate cut thesis for another 6 months.