From a BNZ research note after the RBNZ decisions today

  • BNZ forecast the Reserve Bank of New Zealand will keep cash rate on hold until December 2015
  • Their prior forecast was for a hike in September 2015
  • The BNZ have also lowered their forecast peak in interest rate cycle to 4.25% from 4.5%
  • “RBNZ has been spooked by the fact it can’t find any inflation”

Direct quotes from the BNZ note (bolding mine):

  • “The RBNZ has, for all intents and purposes, said it is on hold for the foreseeable future. Importantly, it has removed the phrase “some further policy tightening will be necessary to keep future average inflation near the 2 percent target mid-point and ensure that the economic expansion can be sustained”. It has sufficed with “A period of assessment remains appropriate before considering further policy adjustment”.
  • “We think this translates into a very strong commitment not to raise interest rates again unless there are clear signs that inflation is going to go through the mid-point of the target band. If one takes this literally then the RBNZ is either not going to hike again until 2016 or, in fact, at all.”
  • “We are genuinely surprised by how relaxed the RBNZ is about future inflationary pressure, accordingly we are pushing back our first rate hike to December 2015 and lowering the peak in our rate cycle to 4.25% (from 4.5%). In so doing, we also acknowledge that the risk to this forecast is downside.”
  • “Perhaps the most important comment that the Bank made today is that “Output growth is expected to moderate over coming years, towards a more sustainable rate”. Not only does this reflect our view that GDP growth is close to peaking (albeit that it will remain robust for a year or two) but it also suggests to us that the RBNZ has raised its view as to where New Zealand’s potential growth rate is. Hence, it gets less inflation from the same growth rate than it did before, requiring, in turn, a lower interest rate profile.
  • “We reiterate that our own interest rate profile remains highly dependent on the NZD falling and falling quite aggressively. We remain of the view that this will be the eventual catalyst for the RBNZ to pull the trigger. Not surprisingly the RBNZ today reiterated the view that it believes the NZD to be “unjustified and unsustainable” and that it is expected to moderate over coming years.”
  • “We wouldn’t be surprised if the RBNZ took the opportunity to give the currency another nudge sometime soon given that the environment is ripe for intervention to be effective given the combination of today’s RBNZ statement and the Fed’s statement, which had already seen the NZD fall over a cent.”