RBNZ: Further easing only if necessary – TD Securities

Ned Rumpeltin European Head of FX Strategy, points out that the RBNZ kept rates on hold today and from TD’s perspective, they took a page out of the RBA's recent playbook as they suggested further easing may come, but only "if necessary".

Key Quotes

“This latest reversion to the sidelines suggests the RBNZ is content to assess the outlook following their 50bps cut last month. That said, the Bank did not highlight any significant change in the monetary policy outlook. This, in our view, implies further easing is still more likely than not. Still, a more neutral tone prevails for now, with a more patience stance toward taking further action. Unlike the June statement where the Monetary Policy Committee (MPC) noted "...a lower OCR may be needed over time", today's statement noted "...interest rates can be expected to be low for longer". No mention of 'lower' is consistent with the conditional easing bias. Overall the MPC sees risks skewed to the downside on a number of fronts.”

“Somewhat to our surprise, the RBNZ remained positive on the outlook 1 year out. Against this backdrop, the market has scaled back the implied probability of a RBNZ rate cut in November to 80% from nearly 90% previously. Despite this, we continue to see downside risks to both domestic growth and the global macro landscape. This keeps us looking for a further cut of 25 bps to 0.75% in November.”

“In terms of the currency, the Bank seems happy with the NZD's recent depreciation. Indeed, NZD is the worst performing G10 currency vs the USD since the August MPS meeting. That 2.75% decline has helped see the NZD TWI underperform the RBNZ's forecasts by 3.5%. Looking forward, we see scope for some of that weakness to unwind - at least in the near term.”