Imre Speizer, Research Analyst at Westpac, expects the RBNZ to keep the OCR on hold at 2.50% at Thursday’s OCR Review, but to explicitly signal further easing is likely. Key Quotes “NZ swap rates and the NZD shouldn’t be too ruffled given what’s priced in. The key elements of the Monetary Policy Statement (MPS) for markets will be the policy paragraph in the press release and the 90-day interest rate forecast. We expect the latter to be lowered significantly (our modelling estimates by -55bp), and the policy paragraph to read something like: “The Reserve Bank will monitor economic and financial developments closely, but at this stage some further reduction in the OCR seems likely in order to ensure that future average CPI inflation settles near the middle of the target range.” Our rationale for expecting such an outcome is mainly that inflation remains very low and the exchange rate high. We assign a 60% probability to this scenario, which should leave the 2yr swap rate and NZD/USD little changed - mainly because the markets have fully priced in one cut by June. The risks to this scenario are: (a) a dovish surprise, which would be the delivery of a 25bp OCR reduction to 2.25%. While we expect the next rate cut to be in June, we regard March as live and assign a 30% chance to this scenario. The 2yr would fall by 19bp, NZD/USD by 2c. (b) a hawkish surprise, which would retain the tone of January’s press release - namely that further easing is possible (but not probable). We see a 10% chance of this outcome, which would push the 2yr 15bp higher and NZD/USD 1.5c higher.” For more information, read our latest forex news.