14 Mar 2014
Flash: RBNZ tightening cycle to peak at 5.0% - BNZ
FXStreet (Bali) - Bank of New Zealand's view that the RBNZ tightening cycle will peak at 5% was reinforced by Wheeler's monetary policy statement on Thursday, Kymberly Martin , Strategist at BNZ says.
Key Quotes
"The RBNZ has started its process of ‘normalising’ the cash rate, from the historic low of 2.50%. We see the Bank at the forefront of a process that will need to ultimately unfold globally, as Central Banks reduce excess stimulus. In this regard, it is interesting to see that consensus now sees rate hikes on the horizon for a number of NZ’s peers. Consensus sees the Bank of England, RBA, Bank of Canada and US Fed moving toward higher rates by mid-2015."
"The RBNZ’s announcement increases our conviction in a number of our key fixed income views. As the RBNZ has nudged up its own 90-day bank bill projections it has supported our view the OCR will ultimately peak above ‘neutral’, at 5.0%. The RBNZ also sees the OCR reaching at least 5.0%. The key difference between our views is that we see the OCR peak being reached sooner (late 2015)."
"We continue to see higher NZ short-end yields in the year ahead. We see 2-year swap (currently 4.01%) at 4.80% by year-end. Similarly we see 5-year swap (currently 4.61%) at 5.20%. Still, the key impediment to paying short-end swap is prohibitive ‘carry’ e.g. 7.6bps/months for 2-year swap."
Key Quotes
"The RBNZ has started its process of ‘normalising’ the cash rate, from the historic low of 2.50%. We see the Bank at the forefront of a process that will need to ultimately unfold globally, as Central Banks reduce excess stimulus. In this regard, it is interesting to see that consensus now sees rate hikes on the horizon for a number of NZ’s peers. Consensus sees the Bank of England, RBA, Bank of Canada and US Fed moving toward higher rates by mid-2015."
"The RBNZ’s announcement increases our conviction in a number of our key fixed income views. As the RBNZ has nudged up its own 90-day bank bill projections it has supported our view the OCR will ultimately peak above ‘neutral’, at 5.0%. The RBNZ also sees the OCR reaching at least 5.0%. The key difference between our views is that we see the OCR peak being reached sooner (late 2015)."
"We continue to see higher NZ short-end yields in the year ahead. We see 2-year swap (currently 4.01%) at 4.80% by year-end. Similarly we see 5-year swap (currently 4.61%) at 5.20%. Still, the key impediment to paying short-end swap is prohibitive ‘carry’ e.g. 7.6bps/months for 2-year swap."