What the experts said

The Official Cash Rate was yesterday left at 2.5%. Here’s what the commentators said:

Christina Leung, ASB:

The RBNZ kept the OCR on hold at 2.5%, as universally expected. The Monetary Policy Statement itself did not contain any major surprises. There was, though, some interesting discussion of the outlook for the NZ economy and interest rates. While the growth forecasts are relatively similar to the March MPS, the RBNZ does sound more upbeat about the footing of the NZ economy and the sustainability of growth. Meanwhile, house price and, as a result, inflation forecasts were revised up.

The biggest change to the RBNZ’s forecasts came in the NZD TWI track, which was also revised up once again. The revisions would have been made in response to the April strength in the NZD (with the TWI setting a new post-float high), but finalised before the recent falls in the exchange rate. Still, it seems that the RBNZ, like us, expects the NZD to remain elevated for much of the next 12 months. Once again, the MPS includes a ‘scenario’ in which the OCR is cut in response to a higher-than-forecast TWI. That scenario is paired with another that foresees higher interest rates in response to faster house price increases and stronger domestic demand. That will continue to be the key tension for the RBNZ. On balance, we continue to expect a first OCR hike in March 2014.

Dominick Stephens, Westpac:
The Reserve Bank played a very straight bat in its Monetary Policy Statement.

The main points were that the domestic economy and housing market are heating up, but the high exchange rate is constraining inflation. This leaves the RBNZ between a rock and a hard place. Balancing these two opposing forces, the RBNZ decided to repeat the bias statement from the last two OCR reviews, as Westpac expected: