9 May 2016
RBNZ to deliver one more rate cut, most likely in June - Westpac
Imre Speizer, Senior Market Strategist at Westpac, notes that the market pricing for the OCR low fell sharply last week after the RBA surprised the market but cutting its cash rate from 2.0% to 1.75%, and then signalled more to come (via its slashed inflation forecast).
Key Quotes
“NZ rates markets quickly priced in an 80% chance of an OCR cut in June, about the same as the AU market has priced in for the RBA in August. The NZ market has also priced a 66% chance of the OCR falling below 2.0%.
For our part, we continue to expect the RBNZ to deliver one more rate cut, most likely in June this year. Low inflation, low interest rates and high asset prices is a global trend. The RBNZ can no more stand in the way of this trend than King Canute could prevent the tide.
Many central banks are reducing interest rates, and consequently these countries’ exchange rates are tending to weaken. This leaves New Zealand with a stark choice. If we refuse to reduce interest rates the exchange rate will rise and inflation could slump further. If we do reduce interest rates, we will endure rising asset (read house) prices. The latter is probably less damaging than the former.”
Key Quotes
“NZ rates markets quickly priced in an 80% chance of an OCR cut in June, about the same as the AU market has priced in for the RBA in August. The NZ market has also priced a 66% chance of the OCR falling below 2.0%.
For our part, we continue to expect the RBNZ to deliver one more rate cut, most likely in June this year. Low inflation, low interest rates and high asset prices is a global trend. The RBNZ can no more stand in the way of this trend than King Canute could prevent the tide.
Many central banks are reducing interest rates, and consequently these countries’ exchange rates are tending to weaken. This leaves New Zealand with a stark choice. If we refuse to reduce interest rates the exchange rate will rise and inflation could slump further. If we do reduce interest rates, we will endure rising asset (read house) prices. The latter is probably less damaging than the former.”