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29 May 2015
Pricing of RBNZ rate cut excessive - Westpac
FXStreet (Bali) - Imre Speizer, FX Strategist at Westpac, discusses his thoughts regarding the RBNZ's 11 June Monetary Policy Statement, assigning only a 10% chance of a rate cut.
Key Quotes
"OIS pricing for the RBNZ meeting on 11 June is excessive in our opinion. It is currently at 3.37% (mid), implying a 52% chance of a 25bp OCR cut that day."
"We assign only a 10% chance to such an outcome, expecting the OCR to remain at 3.50% because (a) the RBNZ has not signalled an imminent rate cut, and (b) its conditions for easing have not all been met."
"Regarding the RBNZ’s signalling behaviour, except in emergencies such as the Canterbury earthquake in 2010, previous OCR changes, either up or down, have been signalled explicitly at the preceding meetings."
"The signals have stated an intention to act imminently. Currently, however, all we have from the RBNZ is a conditional easing bias."
"Moreover, the stated conditions for easing have not all been met. The policy guidance the RBNZ gave at its OCR Review in April was: “It would be appropriate to lower the OCR if demand weakens, and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target.” Embedded here are three conditions, all of which must be met if we interpret the guidance literally."
"The first two, namely wage and price inflation, have possibly been met (although that’s debatable). However the third has clearly not. Demand remains very strong, as the housing market and retail spending attest to."
Key Quotes
"OIS pricing for the RBNZ meeting on 11 June is excessive in our opinion. It is currently at 3.37% (mid), implying a 52% chance of a 25bp OCR cut that day."
"We assign only a 10% chance to such an outcome, expecting the OCR to remain at 3.50% because (a) the RBNZ has not signalled an imminent rate cut, and (b) its conditions for easing have not all been met."
"Regarding the RBNZ’s signalling behaviour, except in emergencies such as the Canterbury earthquake in 2010, previous OCR changes, either up or down, have been signalled explicitly at the preceding meetings."
"The signals have stated an intention to act imminently. Currently, however, all we have from the RBNZ is a conditional easing bias."
"Moreover, the stated conditions for easing have not all been met. The policy guidance the RBNZ gave at its OCR Review in April was: “It would be appropriate to lower the OCR if demand weakens, and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target.” Embedded here are three conditions, all of which must be met if we interpret the guidance literally."
"The first two, namely wage and price inflation, have possibly been met (although that’s debatable). However the third has clearly not. Demand remains very strong, as the housing market and retail spending attest to."