RBNZ signals OCR cuts looming
Nobody was surprised by the Reserve Bank’s announcement this morning that the OCR will remain unchanged at 2.5%.
Thursday, January 28th 2016, 10:03AM
by Miriam Bell
However, economists pointed out that the RBNZ has now adopted an easing bias – which means the OCR may soon drop below the record low it is already sitting at.
Westpac chief economist Dominick Stephens said the RBNZ’s announcement made it very clear the OCR is likely to be cut again.
The RBNZ has acknowledged that inflation had turned out lower than expected and shifted to an explicit easing bias, he said.
“This was in line with our expectation. There has been a very marked shift in the inflation outlook, which in our view has sealed the case in favour of our long-held view that the OCR will fall below 2.5% in 2016.”
However, the RBNZ announcement provided no explicit as to the timing of any OCR cut.
“Our conundrum is whether to forecast a March start to OCR cuts, or a June start. The words of today's statement could support either start date. We will continue to mull the most likely timing over the days ahead.”
The timing of further OCR reductions will depend on the data, with inflation expectations of particular importance, Stephens said.
“Today the RBNZ described inflation expectations as stable, but we suspect they may fall over the year ahead.”
ASB chief economist Nick Tuffley also said the RBNZ’s decision to keep the OCR on hold was in line with expectations.
He agreed the accompanying statement was a clear signal that they could ease the OCR again this year.
“It reinforces our view that there will be a cut later this year. We still think June is most likely but the risks are such that it could come sooner. March or April are possible.”
He thinks the announcement shows the RBNZ has become a lot more conscious of the risks that are around.
“It is a clear acknowledgement that further monetary policy action might be required. And it’s acknowledgment that recent events, like the global turmoil which has started the year, might have an impact.”
The RBNZ noted that the Auckland housing market is coming off the boil, Tuffley said.
“That should give them some comfort, although they said it was too early to tell, so they will be watching the relevant data closely.”
There is no doubt the RBNZ has opened the door for further monetary policy easing, NZIER senior economist Christina Leung said.
“It acknowledged there has been a lot of global market turmoil in the new year, that headline inflation is very low, and that there are, potentially, still financial risks from the housing market.”
However, the statement also notes that core inflation is consistent with the RBNZ’s targets and that, if such factors as oil prices are taken out of the equation, things are OK, she said.
“The RBNZ is likely to feel some pressure to try and get headline inflation back to its targets, which could mean further easing.”
It will all come down to the risks posed by global uncertainty and the situation with the domestic economy.
Leung added that the RBNZ had to produce the type of statement it gave.
“If they hadn’t increased the downward bias, they would have seen the New Zealand dollar shoot right back up again – and they don’t want that!”
Following the RBNZ’s announcement, the New Zealand dollar fell by close to US1c.
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