RBNZ: as unchanged as unchanged gets on an unchanged day

RBNZ: as unchanged as unchanged gets on an unchanged day.

OCR unchanged at 1.75%, and market traders weren’t given anything to play with. Job done.

Key Points

• RBNZ kept the OCR unchanged at 1.75% and delivered an unchanged (accommodative) bias.

• The OCR decision is always a placeholder between MPS decisions. So it takes a mountain of change to get a molehill of a move in-between MP statements.

• The RBNZ remains suitably accommodative in stance, language, and action.
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Summary

As expected, the RBNZ delivered an unchanged policy, with unchanged language. The RBNZ’s statement gave a little, then took a little, but reaffirmed us of the current OCR trajectory. To everyone in New Zealand, and those trading Kiwi instruments internationally, the cash rate is going nowhere for two years. The message is clear. And the message is consistent.

Yes, we have seen an upside surprise in the (old) 2Q GDP numbers. Yes, business confidence has bounced back a bit, after seemingly voting no-confidence in Government policy directives. And yes, the US and Global economy hasn’t imploded under Trump’s tit-for-tat tariff tirade (alliteration at its best). But risks remain. The RBNZ Governor would not risk coming out less dovish, or more hawkish – pick a bird, basically more upbeat. Because Orr knows better than most, that a slight tilted change to the upside would have sent interest rates (expectations) higher, and the Kiwi flyer higher. We don’t need higher interest rates yet, and we don’t want higher exchange rates yet, either. Accommodative the RBNZ are, and accommodative the RBNZ will stay, well into 2019.

The statement itself started off by telling us the OCR will stay at 1.75% into 2020, and the “direction of our next OCR move could be up or down.” Orr noted “While GDP growth in the June quarter was stronger than we had anticipated, downside risks to the growth outlook remain.” The downside risks being Trumpian in nature “Trade tensions remain in some major economies, increasing the risk that ongoing increases in trade barriers could undermine global growth.” But the key line for us was “Robust global economic growth and a lower New Zealand dollar exchange rate is expected to support demand for our exports. ” We still need a low(er) exchange rate. Orr finished with “We will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation.” Crystal clear.

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ends

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