Further responses to the RBNZ interest rate decision today

Author: Eamonn Sheridan | Category: Central Banks

The surprise on hold decision has unleashed a flurry of responses. 

To recap ICYMi:
Adding a few more, in brief:

  • surprised by the RBNZ no change decision
  • "They have given us the same 40% chance that another rate cut will be needed. They have said if things deteriorate they will keep cutting, but that they didn't have enough information to go lower today. We thought we had seen enough."
  • surprising the market
  • RBNZ also surprised by its the RBNZ leaving its OCR forecast unchanged from August
  • The accompanying statements suggest the door is still very slightly ajar for a further OCR cut next year, 'if needed'.
  • To us, the RBNZ's new growth outlook still appears too rosy ... moreover, the RBNZ has yet to factor in the economic impact of its impending bank capital increases, for which we expect a bigger economic impact than the RBNZ" 
Finally, to analysts who did expect an on hold decision (kudos to ING!)
  • this was not the first time this year the RBNZ has bamboozled market expectations
  • Governor Orr said that this was not something they did on purpose,
  • Orr also noted that current policy was "very stimulatory", and that there was "no urgency to act" further. So this does indeed sound as if it is the last cut in this series. This is a little contrary to any suggestion after the rate decision had been published, that the RBNZ might try to talk the market back down. 
  • Although Orr did note that the RBNZ would add further stimulus if needed, it is also apparent that he didn't think they would have to. Orr added a few times that monetary policy was now "very accommodative" and moreover, that contrary to suggestions that monetary policy was no longer effective, in New Zealand, it was indeed working. 
  • He also hinted that fiscal policy was likely to provide some additional support, though there was little offered to back up this suggestion. 
  • Orr also noted that there was no need to play catch-up (to Australia, where rates are 0,75%) due to the RBNZ's decision to start cutting rates early - the implication here is that the RBNZ has been ahead of the game. 
  • Other takeaway messages Orr was keen to highlight were that :Monetary policy would likely remain low for some time, but that;
    It would be data-dependent (so an expectation but no commitment to keep rates low); 
    Growth was likely to stay slower than usual;
    But the projections for inflation were a bit higher, and; 
    Lower potential for growth meant that inflation could still pick up with slower than usual growth. 

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