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27 May 2014
Market under-estimates RBNZ hiking cycle - BNZ
FXStreet (Bali) - Kymberly Martin, Senior Market Strategist at BNZ, believes that the market is now seriously under-estimating the RBNZ hiking cycle.
Key Quotes
"Market prices only 125bps of hikes over the next two years. i.e. that the OCR will only be back at ‘neutral’ (circa 4.25%), 27 months into a tightening cycle, when the economy is expanding well above trend. By contrast, we see the OCR at 5.00% by the end of next year. The RBNZ in its last published MPS saw the OCR at 5.00% by two years’ time."
"But we do acknowledge the risk the RBNZ soon ‘pauses’ in its rate hiking cycle if the NZ TWI remains belligerently high. But current swap levels provide plenty of buffer against this eventuality. If we assume the RBNZ pauses after its June meeting; remains on hold until year-end; then moves very gradually to 5.00% by mid-2016, we still see ‘value’ in current swap levels."
Key Quotes
"Market prices only 125bps of hikes over the next two years. i.e. that the OCR will only be back at ‘neutral’ (circa 4.25%), 27 months into a tightening cycle, when the economy is expanding well above trend. By contrast, we see the OCR at 5.00% by the end of next year. The RBNZ in its last published MPS saw the OCR at 5.00% by two years’ time."
"But we do acknowledge the risk the RBNZ soon ‘pauses’ in its rate hiking cycle if the NZ TWI remains belligerently high. But current swap levels provide plenty of buffer against this eventuality. If we assume the RBNZ pauses after its June meeting; remains on hold until year-end; then moves very gradually to 5.00% by mid-2016, we still see ‘value’ in current swap levels."