Comments on the Reserve Bank of New Zealand decision earlier today from Westpac (via LiveSquawk)
Commentary on the economy was a little more upbeat than the September MPS (in brief and bolding is mine):
Detail of Review reads like a list of the factors the RBNZ will be watching between now and December:
- Uncertainty about the Federal Reserve's actions was mentioned
- The RBNZ said it was too early to tell whether the recent rise in dairy prices would be sustained - presumably, if they are, the OCR is less likely to be cut.
- High Auckland house prices were mentioned, although the RBNZ seemed less uncertain on this front.
- The RBNZ explicitly linked the exchange rate and interest rate decisions, saying that if the exchange rate sustained its recent rise "a lower interest rate path than otherwise" would be required.
The last of these particularly caught our eye, and prevented us from interpreting the statement as unambiguously hawkish.
More ...
Our views on developments between now and December are that:
- Dairy prices will stay high
- So will the exchange rate
- We expect the Auckland housing market to have showed a few signs of slowing, while markets in other parts of NZ continue to pick up
- We expect the Federal Reserve to hike rates in December, although that decision will be made a week after the RBNZ's December decision
If we are right about the way conditions are going to develop, the RBNZ would most likely cut the OCR in December, because of the high exchange rate.
But there is much water to flow under the bridge between now and December, so we must repeat our caution from last week - a December cut is no done deal. The RBNZ is very open minded.
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Earlier:
- AUD/USD & NZD/USD orders
- Responses to the RBNZ coming in ... ASB first cab off the rank
- NZD edging higher after the RBNZ decision-levels
- Full text of the RBNZ rate decision
- RBNZ announce NO CHANGE in cash rate
