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RBNZ: Risks skewed towards a dovish outcome – Westpac

The Westpac Team views RBNZ’s interest rate forecast to be downgraded, and sees the risks to be tilted towards a dovish outcome.

Key Quotes

“In tomorrow’s Monetary Policy Statement, we expect the OCR to remain unchanged at 3.50% and the RBNZ’s interest rate forecast to be downgraded. This is already priced in so market reaction should be trivial. However, the risks are skewed towards a more dovish outcome.”

“The main development since the RBNZ’s September MPS is the surprisingly low Q3 CPI outturn (1.0% yoy), falling inflation expectations and lower commodity prices being additional negatives. Migration and lower mortgage rates are partly offsetting positives. The net effect is an estimated 30bp fall in the RBNZ’s 90-day interest rate track, which forms our neutral scenario.”

“The accompanying press release is likely to be similar to October’s, although the recent negative acceleration in oil prices and downside risks to inflation could be mentioned.”

“That said, we suspect the RBNZ will strongly reiterate that it is currently in a period of “monitoring and assessment” of inflation, and that the OCR is unlikely to change for some time.”

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