RBNZ: Market pricing 96% chance of OCR cut in August - Westpac

Imre Speizer, Research Analyst at Westpac, notes that the market pricing for an RBNZ OCR cut to 2.0% on 11 August was stable last week, implying around a 98% chance.

Key Quotes

Markets have also priced in a 1.75% OCR by Feb 2017. Softer CPI data, further planned macroprudential measures, and an elevated NZD leave us in no doubt that the RBNZ will cut the OCR to 2% on 11 August. Indeed the RBNZ is likely to signal its willingness to go even lower.

The RBNZ made no bones about the deteriorating inflation outlook in their hurriedly scheduled Economic Update released two weeks ago. The one page statement bluntly stated that the “outlook for inflation has weakened since the June Statement.” The softer inflation outlook is largely due to the TWI which remains well above its June level, which is making it “difficult for the Bank to meet its inflation objective”.

Currently, the TWI is averaging 7% above the RBNZ’s forecast for Q3, which on its own argues for 1.5% OCR. Of course, the RBNZ will overlay that with other judgements and we will be very interested in where it shifts its 90d interest rate projection to.”