ANZ takes contrary view on next OCR hike

The Official Cash Rate will remain the same for the rest of the year, according to ANZ Bank.

Despite consensus there will be a December cut, the bank said those odds were at 30% and they had faith in the economic data that showed further improvement into year-end.

“In the aftermath of the RBNZ’s decision to keep the OCR on hold at 2.75%, we have once again found ourselves out of consensus on our views for the monetary policy outlook from here – as we were in May and June,” the bank stated.

“But this is not because we think that the easing cycle is over; far from it. With growth still sub-trend (albeit stabilising) and inflation low (and the high NZD delaying the return of inflation to 2%), one further 25bp cut in the OCR to 2.5% remains our base case. In fact, the risk profile is skewed towards more easing beyond that.”

They said their view was that further easing will be a 2016 story (March).

“Six weeks is not really that long to watch and wait – particularly given there is not a lot in the way of major data between now and then. While there are a few dairy auctions and our Monthly Inflation Gauge to watch, we suspect the RBNZ will get inconclusive information on some of the factors it has highlighted as highly uncertain, such as the sustainability of the recent dairy price bounce and the pass-through from the NZD to inflation.

The Q3 labour market data, which is due this week, is expected to confirm what they already knew - the demand for labour has softened, ANZ economists said.

“There is spare capacity in the labour market, and wage growth remains subdued. Moreover, the RBNZ almost appears to be downplaying the labour market’s importance.”

Better-looking domestic economic prospects could also encourage the RBNZ back into action.

“The RBNZ needs a weaker NZD to get inflation back towards 2%; it is just not getting that at present. Currencies remain a key variable through which monetary conditions are being expressed (better-looking economies have firmer currencies) and in that sort of world interest rates must ultimately converge.”