11 Jun 2015
RBNZ review: Projections and commentary extremely dovish - ANZ
FXStreet (Bali) - Cameron Bagrie, Chief Economist, and Philip Borkin, Senior Economist, both representing ANZ, provide their review to today's RBNZ interest rate cut to 3.25%, an outcome that the bank had been calling for some weeks.
Key Quotes
"The Reserve Bank cut the Official Cash Rate by 25bps today to 3.25%. The projections and commentary were extremely dovish. The lower terms of trade (think dairy prices) and higher supply-side capacity were key dynamics. The possibility of lower structural inflation is still on the table on top of shifting macro themes. The bottom line is that a lower NZD and interest rate cuts are necessary to get inflation back to 2% given other economic headwinds. The RBNZ’s growth numbers still look optimistic to us, and we expect at least one more cut before the end of the year, with 50% odds of a second."
"The NZD immediately revisited its recent lows marking a new marginal cycle low, and while the psychological import of the 70 big figure will probably hold NZD up for a while, the beginning of the easing cycle and RBNZ expectation that the NZD needs to devalue further should see the declining NZD trend reinforced. We expect it to head through 70 toward our trade target of 0.68. We agree with the RBNZ that the NZD and NZ TWI need to continue to decline and forecast further declines for the NZD both against the USD and the broader trade-weighted basket."
Key Quotes
"The Reserve Bank cut the Official Cash Rate by 25bps today to 3.25%. The projections and commentary were extremely dovish. The lower terms of trade (think dairy prices) and higher supply-side capacity were key dynamics. The possibility of lower structural inflation is still on the table on top of shifting macro themes. The bottom line is that a lower NZD and interest rate cuts are necessary to get inflation back to 2% given other economic headwinds. The RBNZ’s growth numbers still look optimistic to us, and we expect at least one more cut before the end of the year, with 50% odds of a second."
"The NZD immediately revisited its recent lows marking a new marginal cycle low, and while the psychological import of the 70 big figure will probably hold NZD up for a while, the beginning of the easing cycle and RBNZ expectation that the NZD needs to devalue further should see the declining NZD trend reinforced. We expect it to head through 70 toward our trade target of 0.68. We agree with the RBNZ that the NZD and NZ TWI need to continue to decline and forecast further declines for the NZD both against the USD and the broader trade-weighted basket."