RBNZ: Surprise 50bps OCR cut – Westpac

Dominick Stephens, chief economist at Westpac, points out that the Reserve Bank of New Zealand reduced the OCR by 50 basis points to 1.00% at today’s Monetary Policy Statement.

Key Quotes

“This was a stunning decision – in the history of the OCR, the only times the OCR has been cut by 50bps or more have been after the 9/11 terrorist attack, during the GFC, and after the Christchurch earthquake. We are very surprised that the RBNZ decided to cut 50bps in today’s environment.”

“There was no signal in this document about the likelihood of further cuts, and the published OCR projections bottomed out at 0.9%, implying only a small chance of a further OCR cut. The RBNZ appears to be trying to get ahead of the curve with today’s move.”

“Consequently, we doubt that the RBNZ will cut the OCR in September.”

“However, given the Committee’s clear willingness to reduce the OCR, and our view that there is some further economic softness to come in the near term, we now expect another 25bp cut in November. That will take the OCR to 0.75%.”

“Like us, markets were stunned by the 50bps cut. The exchange rate fell by more than a cent to 0.6430 and two-year swap rates fell by 14bps. This is likely to lead to further declines in fixed mortgage rates.”