The Reserve Bank of New Zealand meet this week

  • Announcement due Thursday 11 May(local NZ time)
  • Announcement due 2100GMT on May 10
  • The current official cash rate is 1.75%
  • As well as the OCR announcement there will be an accompanying Monetary Policy Statement & media conference

ASB's preview (in brief):

Expect on-hold decision from the RBNZ

Inflation has continued to firm since the February MPS, which will comfort the RBNZ, both in terms of mitigating the risks of low inflation and also in terms of aiding an increase in inflation expectations

  • Q1 CPI firmed to 2.2% y/y from 1.3%, with non-tradable inflation also stronger than the RBNZ had anticipated
  • We look for the RBNZ to lift its inflation outlook, particularly for the year ahead

A number of risks to the outlook, including the potential for US President Donald Trump's policies to adversely impact NZ growth and inflation

We expect the RBNZ's OCR track to show a slightly earlier start to future OCR increases compared to the February MPS

  • We continue to expect... that any change in the OCR is still a long way off
  • We look for the first signs of tightening to be pulled forward at least 6 months, to mid-2019. Should the track be pulled forward into late 2018, the market is likely to read this as a hawkish signal, prompting a market reaction.

The RBNZ will again be looking to strike a neutral tone in its statement

  • We expect no change to the ending of the statement: "Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly."
  • Any adjustment here could bring forward market pricing for the timing of the next interest rate hike.

Likely to be a slight tweaking of the language around the NZD, considering its recent depreciation

  • At the March OCR Review the RBNZ said the NZD's depreciation was "an encouraging move, but further depreciation is needed to achieve more balanced growth."
  • Given the NZD has softened further since that statement, we could see a tweak towards "The further depreciation in the NZD since March is encouraging, but further depreciation is desirable to achieve more balanced growth."