RBNZ: Cash rate unchanged - Nomura

Andrew Ticehurst, Research Analyst at Nomura, notes that the RBNZ today announced an unchanged cash rate, as was uniformly expected, but with a new RNBZ governor on board and a new Policy Targets Agreement (PTA) in place, Nomura sees differences in style and tone, with the latter coming across as somewhat more dovish.

Key Quotes

“Its broad outlook remains for solid global and domestic growth, with the economy operating around full potential and inflation slowly rising to target, which looks like a near-perfect world. However, forecast revisions, although modest, were in a downward direction on GDP, labour costs and CPI inflation. The RBNZ’s cash rate profile continues to show a 25bp rate hike not fully factored in until Q1of 2020. However, the opening statement of the governor’s press release is striking, stating that the cash rate will remain unchanged “for some time to come” and that the “direction of our next move is equally balanced, up or down”.”

“On strategy, we remain comfortable with our view that RBNZ will lag the RBA in tightening – we have RBNZ first raising rates in the second half of 2019, while the RBA is still forecast to move this coming November – and we remain long AUD/NZD, targeting a move towards 1.11 over coming months. Markets appear to agree with our assessment, with NZ short-end rates lower, and NZD lower too.”