Negative terms-of-trade shock to open doors for more RBNZ rate cuts - Nomura Research Team at Nomura believes that a big negative terms-of-trade shock. This will lead to weaker growth and inflation prompting RBNZ for further monetary policy easing. Key Quotes: “As a result of falling commodity prices, especially dairy, New Zealand’s economy is facing a big negative terms-of-trade shock. This will lead to weaker growth and inflation.“ “The Reserve Bank of New Zealand (RBNZ) has already reacted to this negative shock by cutting its policy rate by 25bp at June’s meeting.” “With dairy prices expected to continue to fall, as supply continues to grow, we expect the central bank to cut again in July and again before the end of the year, with the timing dependent on the speed of the expected deterioration in the terms of trade.” “ As a result of the continued decline in the terms of trade and further monetary easing, we expect NZD to continue to depreciate. “ “We estimate that the decline in the terms of trade so far this year represent a fall of about 2.2% of nominal GDP.” “This reduction in growth and the weaker NZD resulting from the decline in the terms of trade will also have some impact on inflation. In the short term, this impact is likely to push inflation higher because of the pass-through effect on tradable inflation.”