Less urgency to cut OCR but bias remains
The market and economic backdrop has changed noticeably since the RBNZ last cut interest rates in March. As a result there is much less urgency to cut the official cash rate (OCR) at the upcoming 9 June meeting. The market is pricing a 20% chance of a 25 basis point cut. However, looking further ahead, in our view a continued absence of inflation pressures still points to low interest rates for an extended period.
The stars aligned for an OCR cut back in March:
- The IMF and others revised down global growth forecasts;
- Global markets wobbled as fears of a recession set in;
- Wholesale funding markets became strained;
- Global commodity prices fell, including dairy prices to new lows; and
- Oil prices dropped below $30 a barrel, putting further downward pressure on global headline inflation in Q1 2016.
As we approach the June Monetary Policy Statement, the RBNZ is met with a very different backdrop:
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