RBNZ Official Cash Rate Decision - No Change - NZD Lower

The RBNZ have maintained the Official Cash Rate (OCR) at 1.75%. This was widely expected.

The key points in the RBNZ statement are:

· Reserve Bank of NZ maintains the Official Cash Rate at 1.75%

· Decline in the NZD is needed and current high NZD is unsustainable

· Numerous uncertainties in international environment

· Inflation to return to midpoint of target gradually

· RBNZ sees the OCR at 2.0% in 1Q 2020 – this is notably lower than the market pricing immediately prior to the RBNZ’s release.

· Also see OCR at 1.8% in 4Q 2017 & 4Q 2018

· GDP growth has increased as expected

· Domestic growth has increased as expected, drawing on spare resources

· Dairy prices have recovered but future uncertain

· Recent moderation in house price inflation is welcome

· Economic outlook remains positive

· Global headline inflation has increased

· Financial conditions have firmed

The NZD sharply lower in immediate response.

The key point in the OCR decision and related Monetary Policy Statement (page 10) is that the RBNZ expect the OCR to stay on hold much longer than the markets had previously expected and priced in. This was the prime catalyst for the decline in the NZD.

The next OCR decision will be held on 7th March 2017.

Below is link to the RBNZ press statement and full Monetary Policy Statement:

http://www.rbnz.govt.nz/news/2017/02/official-cash-rate-unchanged-at-1-75-percent

http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Monetary%20policy%20statements/2017/mpsfeb17.pdf

The RBNZ holds a press conference at 10am, followed by Governor Wheeler testimony before the Finance & Expenditure Select Committee at 1:10pm.

Current indicative levels are:

NZD-USD 0.7245 / 0.7270
NZD-AUD 0.9495 / 0.9520
NZD-EUR 0.6775 / 0.6800
NZD-GBP 0.5780 / 0.5805
NZD-JPY 81.20 / 81.45

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