MPS likely to echo Australian outlook: Westpac

The Reserve Bank's Monetary Policy Statement is likely to strike a similar tone to the Reserve Bank of Australia's recent forecast, keeping interest rates on hold and leaving the door open for easing in 2020, Westpac economists say.

Monday, November 11th 2019, 7:30AM

The Reserve Bank's Monetary Policy Statement is due on Wednesday, and the central bank is poised to deliver its latest assessment of the economy.

Westpac's economists, including Dominick Stephens, expect the central bank to adopt a "similar" tone to the RBA.

Last week, the RBA downgraded predictions around economic growth, wages, housing investment and consumption. The RBA kept the door open to future cuts, despite the Aussie rate hitting a record low of 0.75% in August.

Stephens said: "The statement may be very similar to the RBA’s recent missive: the outlook has not changed recently, risks are still to the downside, there is scope for future easing if required."

The bank does not expect the RBNZ to alter its OCR forecast. The RBNZ has predicted a trough of 0.9% in 2020, before a gradual increase to roughly 1.5% by 2023.

Stephens believes conflicting economic data since August could prompt the Reserve Bank to hold off on further rate cuts for now.

"Despite the lack of any RBNZ cutting signal, until recently we thought that a rash of downside data surprises would prompt the RBNZ to change its view and cut in November," Stephens said. "That is not the way the cookie has crumbled. Instead, there have been a mix of upside and downside domestic developments recently."

If a cut does arrive, Stephens believes the MPS will be used to "justify" the decision.

The bank believes economic data will deteriorate by February, strengthening the case for a cut then.

"Our view is that evidence favouring a cut will have accumulated sufficiently by February, which is when we think the OCR will reach its low of 0.75%. That is based on our view that global economic sentiment is going to deteriorate once again," the Westpac economists said.

Tags: RBNZ Reserve Bank Westpac