RBNZ: Status quo maintained - ANZ

The RBNZ stuck to its guns this morning, delivering a very similar statement to June and it is clear that it sees the need for a strong domestic economy to offset tradable inflation weakness, which means that hikes are a long way off and its stance is ultraneutral, although there was a hat-tip within the forecasts to the next move in rates being up, explains the analysis team at ANZ.

Key Quotes

“The RBNZ maintained the OCR at 1.75% this morning, in what was Graeme Wheeler’s final OCR decision as RBNZ Governor. With recent economic developments largely consistent with its cautious stance, the RBNZ stuck with its clear ultra-neutral tone, repeating that “monetary policy will remain accommodative for a considerable period”.”

“To be fair, we had expected there to be a few more dovish nuances within the statement than is apparent. There was the odd tweak. Comments on the NZD were stiffened: whereas previously a lower NZD “would help” rebalance growth, is it now seen as “needed” to increase tradable inflation and deliver more balanced growth. A reference to wage growth being expected to increase gradually was dropped from the policy assessment (although it was still referred to in the broader statement). Affordability constraints were added to the list of factors moderating house prices (with this moderation still expected to persist). But essentially the policy assessment was a very ‘BAU’ message.” 

“It is clear the RBNZ is focusing on the medium term, and recent developments do not appear to have changed its views on the medium-term outlook. The RBNZ is maintaining a relatively positive view on the domestic growth outlook, continues to see the unemployment rate trending lower, and wage growth rising. As such, non-tradable inflation still rises gradually within the forecasts.”

“The tone of the document signals clearly that it is going to take a lot of accumulated evidence to warrant a departure from this cautious stance (in either direction). The RBNZ is not going to respond to one or two data points.”

“In terms of the Bank’s projections explicitly, there were few surprises. The RBNZ has cut its inflation forecasts further, reflecting the lower starting point and recent oil price falls. Annual headline inflation hits 0.7% in Q1 2018. However, it is actually forecast to get back to 2% a quarter earlier than projected in May. The RBNZ’s sequential growth forecasts are little changed, with the RBNZ forecasting quarterly GDP growth of between 0.8% and 1.0% over the next two years. We end up with a 1% plus positive output gap but modest inflation.”