10 Mar 2016
RBNZ: Shock and awe ahead of ECB – TDS
Research Team at TDS, notes that the RBNZ unexpectedly cut the Official Cash Rate (OCR) by -25bp to 2.25%.
Key Quotes
“OIS was 28% priced for –25bp, and only 2/17 analysts expected a cut. Subsequently, the NZD plummeted on the cut and promise of more, and will remain under pressure, despite the crucial ECB meeting looming later today.
The RBNZ believes another cut is likely, with “Further policy easing may be required to ensure that future average inflation settles near the middle of the target range” and the bank bill profile (i.e. OCR forward guidance) was slashed.
The RBNZ leaned heavily on weak inflation expectations as justification for the move, but the mention of “The trade -weighted exchange rate is more than 4 percent higher than projected in December, and a decline would be appropriate given the weakness in export prices” tells us that this is all about the currency. We see today’s decision as a shock to lower the NZD TWI.
Our base case is now for a cut on April 28, reaching a terminal rate of 2%. Early OIS re-pricing has this 2% cash rate already priced. We’ll leave the OCR at 2% until year end as our base case for now.”
Key Quotes
“OIS was 28% priced for –25bp, and only 2/17 analysts expected a cut. Subsequently, the NZD plummeted on the cut and promise of more, and will remain under pressure, despite the crucial ECB meeting looming later today.
The RBNZ believes another cut is likely, with “Further policy easing may be required to ensure that future average inflation settles near the middle of the target range” and the bank bill profile (i.e. OCR forward guidance) was slashed.
The RBNZ leaned heavily on weak inflation expectations as justification for the move, but the mention of “The trade -weighted exchange rate is more than 4 percent higher than projected in December, and a decline would be appropriate given the weakness in export prices” tells us that this is all about the currency. We see today’s decision as a shock to lower the NZD TWI.
Our base case is now for a cut on April 28, reaching a terminal rate of 2%. Early OIS re-pricing has this 2% cash rate already priced. We’ll leave the OCR at 2% until year end as our base case for now.”