RBNZ: OCR unchanged, "on hold" guidance for monetary policy maintained – Westpac

Dominick Stephens, Research Analyst at Westpac, explains that as expected, the RBNZ left the OCR unchanged at 1.75% at this morning’s OCR Review and the bottom line guidance was a repeat of the guidance that has been used more-or-less unchanged all year: "Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly."

Key Quotes

“However, the RBNZ appears to have downgraded its forecast of GDP growth over the coming year. This could be a hint in the direction of a more dovish November Monetary Policy Statement.”

“The RBNZ acknowledged the recent improvement in global growth, which was described as having “improved” in recent quarters. That was a slight upgrade on the August description that global growth was becoming “more broad-based.” And the RBNZ acknowledged that the exchange rate had fallen by more than anticipated. The RBNZ said that a lower NZ dollar “would help”, which is a slight downgrade of August’s “is needed.”

“Counterbalancing these more hawkish phrases was a very important acknowledgement that construction activity has been weaker than expected, and a hint that the RBNZ has downgraded its GDP forecasts. The RBNZ said that “Growth is projected to maintain its current pace going forward.” This is clearly weaker than the RBNZ’s previous statement that “Growth is expected to improve going forward.” If the most recent quarterly GDP outturn was repeated, the annual percentage change in GDP would reach 3.2% by June 2018. That compares to the RBNZ’s forecast of 3.8% that appeared in the August MPS.”

“There was also a veiled acknowledgement of the recent slowdown in net migration. The RBNZ dropped the word “strong” from its descriptions of population growth.”

“The RBNZ did not change its description of the housing market, despite house price growth over the past six months being around 4.7% weaker than its August forecast. Presumably the RBNZ remains wary of the housing market rebounding after the election.”

“The RBNZ was never going to strike a bold new tone at this OCR Review, given the pall of uncertainty that has been cast by the election. It is therefore entirely unsurprising that the bottom line guidance sentence was repeated. The acknowledgement of a lower growth outlook was an important development that could hint in the direction of a more dovish November Monetary Policy Statement.”