No dovish nod to future for RBNZ

Not only did the Reserve Bank keep the OCR on hold at its record low of 1.75% but it did not change its forecasts for the OCR track, signalling a flat OCR until late 2019.

Given a recent slew of weaker than expected economic data, the Reserve Bank’s determinedly unchanged tone came as a shock to most economists.

Westpac chief economist Dominick Stephens was surprised the response to the weaker data was so muted and that the Reserve Bank wasn’t more dovish.

They did acknowledge the recent data on inflation and GDP and the softer housing market – all of which are developments to the downside, he said.

“But it appears this was water off a duck's back them and they held their line: the OCR is on hold and expected to remain that way for some time.”

Stephens said it is always hard to say when the Reserve Bank might capitulate to data – but it was clearly not going to at this time.

“We think there is scope for them to adopt a more dovish stanch in upcoming statements, but we remain comfortable with our forecast for no change in the OCR over 2018.”

Markets are priced for hikes in late 2018 but there was nothing in the statement to support that, he added.

ASB chief economist Nick Tuffley agreed that the Reserve Bank’s OCR outlook was not as dovish as expected.

The fact that the Reserve Bank left its forecasts unchanged indicated the OCR won’t start lifting till late 2019, he said.

“We had seen a good chance the Reserve Bank would push out the point at which its forecasts showed increases, but the neutral stance was retained.”

ASB continues to expect the OCR will remain on hold until February 2019.

NZIER senior economist Christina Leung also said the Reserve Bank’s decision to leave the OCR track unchanged was surprising - given recent inflation and GDP results and the slower housing market.

“Overall, they are indicating that interest rates are going to remain unchanged for a while.

“While it is surprising they weren’t more dovish, they have given themselves lots of leeway to move again.”

For BNZ senior economist Doug Steel, the Reserve Bank’s announcement showed very little has changed for them, despite the recent weaker data.

He said the Reserve Bank is clearly planning to keep rates on hold until they see more change.

“The OCR is still on hold and will be for a long time. So no hikes look likely until 2019 – or even early 2020.”

ANZ chief economist Cameron Bagrie also thought the Reserve Bank’s statement clearly signals it will take lots of evidence to warrant it taking a departure, in either direction, from its cautious stance.

“While the MPS wasn’t as dovish as we expected (with an unchanged, rather than lower, OCR track) we think the ‘upside’ surprise will fade quickly,” he said.

“This means that hikes are a long way off and the Reserve Bank’s stance is ultra-neutral, although there was a hat-tip within the forecasts to the next move in rates being up.”

Read more:

OCR and MPS: What the Governor said

Future could hold OCR cuts