RBNZ: Surprise 50bps cut – TD Securities

According to analysts at TD Securities, the RBNZ took the market by surprise and cut the OCR by 50 bps at its August MPC meeting.

Key Quotes

“Ahead of the policy announcement, rates markets were fully priced for a 25bps move while all but a handful of analysts were looking for the same according to Bloomberg's poll. Those few in the minority were looking for an unchanged result.”

“In its official statement, the MPC debated between a cut of 25 and 50bps this month. Members "noted both options were consistent with the forward path in the projections...[but] agreed that the larger initial monetary stimulus would best ensure the Committee continues to meet its inflation and employment objectives." In line with this, the accompanying Monetary Policy Statement for August indicated some chance of further rate cuts ahead.”

“Their OCR forecasts trough at 91bps in Q4 2020 - i.e. an implied 36% chance of another 25 bps rate cut. The MPS continues to highlight a series of both domestic and global risks. The Committee expects growth to remain soft in the near term - although at 2.5% y/y in Q1, it is the envy of most other DM economies. Domestic demand remains under pressure from a slowing housing market and subdued business confidence. The RBNZ has revised its GDP forecasts lower accordingly by -0.3 to -0.5 ppts through the second quarter of next year.”