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RBNZ: Monetary policy unchanged, global concerns weigh - ANZ

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 28, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Research Team at ANZ, notes that the RBNZ left policy unchanged today, as expected. However, its concern over the global outlook and ability of inflation to return to its target range within a comfortable timeframe has increased.

    Key Quotes

    “Whereas its easing bias in December was conditional, a more explicit bias was evident today, with the Bank noting that “some further policy easing may be required over the coming year to ensure that future average inflation settles near the middle of the target range.”

    Despite maintaining an expectation of an improved growth backdrop over the year ahead – and even explicitly acknowledging core inflation at 1.6% and stable inflation expectations – low headline inflation remains a headache for the Bank. While it almost goes without saying given oil price moves, the RBNZ noted that “Headline inflation is expected to increase over 2016, but take longer to reach the target range than previously expected.” That creates presentations issues.

    It’s far from one way traffic though.
    • Growth is still very solid.
    • The RBNZ makes explicit reference to core inflation being 1.6%. No doubt this acknowledgement is partly to dilute sensitivities towards a low headline inflation rate but it’s still notable.
    • Housing risks are noted.
    • Both upside (immigration, pressure in the housing market) and downside (global growth and financial conditions, dairy) risks are specifically noted.
    • The NZD is adjusting; not as fast and much as one would like but there is still movement.

    This doesn’t sound like a central bank ready to cut rates any time soon. But the door is open, and markets will run with it.

    We are still watching our 6 C’s (China, currency, commodity prices, cost of funds, credit growth and confidence). Some of those we can tick as being problematic and justifying a lower OCR (cost of fund increases, low export prices) but we are not seeing enough across the board to justify a material further easing in policy.

    While the easing bias has been “stepped up”, the Bank stopped short of setting the scene for a March cut, so it is difficult to argue with markets when odds of a March cut sit at around 50/50. We continue to favour receiving the short end on any back-ups.”
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