RBNZ expected to leave the OCR at 1.75% - TDS

According to analysts at TDS, the RBNZ is unanimously expected to leave the Official Cash Rate (OCR) at 1.75% next Thursday and the Bank will also be releasing updated GDP and CPI projections with its quarterly Monetary Policy Statement, and more crucially, its OCR projections through to end-2020.

Key Quotes

“The dominant theme in New Zealand markets right now is policy uncertainty, especially what form the RBNZ ‘dual mandate’ will be, weighing down the NZD (aside from today’s pop) and flattening the bond/swap curve.”

“However, the right question should be to what extent does the new Labour/NZ First/ Green coalition government pump-prime the economy way beyond its capacity. The output gap is already positive according to the IMF October WEO.”

“Today’s blockbuster Sept qtr labour market report saw the unemployment rate slip to a nine-year low of 4.6%, private sector wages growth pop to a five-year high of 1.9%/yr and the participation rate leap to a fresh record high of 71.1% (one of the highest in the OECD). And let’s not forget that Q3 CPI was much stronger than the Bank expected at +0.5%/qtr, against RBNZ expectations of +0.2%/qtr.”

“While the RBNZ staying the course during this period of political uncertainty is the default view of consensus, we beg to differ. The RBNZ’s 2% mid-point mandate remains in play until the new Governor assumes the role in late March 2018. If the Bank chooses to remain mute for several months, it risks being well behind the wage and inflation curve.”