RBNZ: OCR stays at 1.75%, on hold guidance maintained for monetary policy - Westpac

Dominick Stephens, Research Analyst at Westpac notes that the RBNZ left the OCR unchanged and maintained its "on hold" guidance for monetary policy.

Key Quotes

“The RBNZ remains content to forecast no OCR hike in 2018, as are we.

• The RBNZ's overall guidance was exactly the same as the July OCR Review and the May MPS: "Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly."
• The OCR forecast was also unchanged, signalling a flat OCR until late 2019 and gentle hikes thereafter.
• The RBNZ issued a balance of alternative scenarios, one to the upside and one to the downside.
• Weaker recent data on global inflation, the economy and the housing market was discussed. The RBNZ also appears more concerned that the low inflation of recent years is becoming embedded in inflation expectations.
• The RBNZ expressed displeasure with the recent rise in the exchange rate.
• While these developments are all to the downside, it appears this was water off a duck's back for the RBNZ. There was very little change in the RBNZ's growth or inflation forecasts for 2018, and absolutely no change in the forward guidance for monetary policy.
• While the basic tone of the MPS was as expected, we were a little surprised that the RBNZ's reaction to recent weaker data was so muted. Markets were primed for something slightly more dovish, so the NZD rose a third of a cent and the two-year swap rate rose two basis points.
• We remain comfortable with our forecast for no change in the OCR over 2018.”