OCR - more dovish; clear easing bias maintained

FIRST TAKE: RBNZ OCR announcement - more dovish; clear easing bias maintained

The RBNZ left the OCR unchanged at 2.5%, in line with our's and market expectations.

Governor Alan Bollard reiterated that the OCR would remain “at or below”current levels until the end of 2010.

The statement was dovish, in fact, more dovish than we have seen in recent months. The strength of NZD appears to be a growing concern for the RBNZ.

Indeed, the key difference in today's commentary from previous statements was the focus on financial conditions. According to today's statement, if financial conditions, which have tightened owing to NZ appreciation, do not ease, the RBNZ will "reassess policy settings".

With NZD where it is (up 13% against the US dollar this year), the RBNZ won't be rushing into the next tightening cycle. That said, it will take a material deterioration, probably, in the global outlook to trigger a further reduction the cash rate.

Our forecast: the next move will be a 25bp hike 3Q10.

More detailed analysis to follow.

ENDS

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