Imre Speizer, Research Analyst at Westpac, notes that the RBNZ’s Monetary Policy Statement (MPS) this morning cut the OCR by 25bp to 2.25% and signalled one more cut to come to take the terminal rate to 2.0%. Key Quotes “That outcome surprised market expectations of an on-hold decision, such that the NZD and swap rates fell sharply in response. The policy guidance paragraph was: “Headline inflation is expected to move higher over 2016, but take longer to reach the target range. Monetary policy will continue to be accommodative. Further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data.” The 90-day interest rate forecast was lowered by exactly 50bp, consistent with a terminal OCR rate of 2.0%. We expect the next cut will be in June. The NZD exchange rate narrative was a fairly weak warning, as it was in January, now reading: “The trade-weighted exchange rate is more than 4 percent higher than projected in December, and a decline would be appropriate given the weakness in export prices.”. NZD/USD fell from 0.6775 to 0.6653, and should extend towards 0.6600 over the day. AUD/NZD rose from 1.1075 to 1.1264, and should remain bid during the weeks ahead, en-route to the next major target at 1.1350. 2yr swap rates fell from 2.45% to 2.28%, and should eventually settle just above the 2.20% level. The 10yr fell from 3.10% to 2.95%%, leaving the 2-10yr curve slightly steeper at 68bp. We expect the curve to steepen during the months ahead.” For more information, read our latest forex news.