The markets are likely to be a little subdued today as we await the huge central bank news due out Thursday …. that’s right the Reserve Bank of New Zealand policy meeting. (Oh, there’s also a meeting from a central bank on the other side of the world too, the results of this will be out before the RBNZ … the Federal Reserve’s FOMC meeting. Never heard of ‘em

:-D

Adam has a preview here of the FOMC).

So, once the FOMC is out of the way, what can we expect from the RBNZ?

  • First things first … The RBNZ announcement is due at 2000GMT on Wednesday, 29 October 2014. That’s Thursday morning in New Zealand.
  • Inflation data in New Zealand has been subdued, which gives the Reserve Bank of New Zealand plenty of scope to maintain its current neutral stance. The bank has been hiking the official cash rate aggressively (up 1% in 2014) but is now a “period of assessment”.
  • Its worth noting that the RBNZ publish its Financial Stability Review on November the 12th, so while no-one expects any move on rates to be announced tomorrow, the imminence of the Review gives another reason to doubt any move tomorrow.
  • We can expect the Review in November to examine the effectiveness of the bank’s macroprudential tools. Governor Wheeler recently said that these tools had a similar effectiveness to a 25-50 basis point rate hike.

OK, so while there is no change in the OCR expected, there will be much focus on the language used:

  • the RBNZ have described the level of the NZD as “unjustified and unsustainable”. While the NZD has fallen, the bank would like it lower still … so the language used on the exchange rate level will be important.
  • Westpac NZ chief economist Dominick Stephens said in a note last week that “The RBNZ will probably acknowledge that the exchange rate has fallen in response to lower export prices. But it will contend that the depreciation has not been sufficient, and that the exchange rate remains “unjustified and unsustainable” – code for possible exchange rate intervention”

OK, so while there is basically zero expectation of any move from the RBNZ tomorrow, when is the next hike expected?

September 2015 is a popular pick:

But, on hold all through 2015 and not until 2016 is also growing: