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25 Jul 2014
RBNZ : Pause, but not finished - TDS
FXStreet (Bali) - Annette Beacher and Prash Newnaha, FX Strategists at TD Securities, note that the RBNZ remains on a path towards a more neutral 4.5% interest rate level.
Key Quotes
"Yesterday the RBNZ delivered the widely expected +25bp increase in the cash rate to 3.5%, and clearly signalled a pause via “It is prudent that there now be a period of assessment before interest rates adjust further towards a more-neutral level”. This announcement is as TD expected, and increasingly, consensus."
"Where to from here, however, sees consensus diverge. While we are the view that the RBNZ remains on a path towards a more neutral 4.5%, some see the cooling in housing as a means for the RBNZ to pause indefinitely, with the risk of over-tightening and an inverted yield curve should the RBNZ persist on attempting a return to neutral in less than two years. After today’s “pause” signal, the 12mth OIS strip is pricing no change in the cash rate until +25bp in a year’s time, in our view a little too conservative at this stage."
"After a blockbuster first quarter for GDP growth and exports, activity data for Q2 to date suggests less spectacular results, which is likely to be welcomed by the RBNZ. After all, the Bank merely wishes for a return to a more neutral cash rate, not shift into contractionary territory."
Key Quotes
"Yesterday the RBNZ delivered the widely expected +25bp increase in the cash rate to 3.5%, and clearly signalled a pause via “It is prudent that there now be a period of assessment before interest rates adjust further towards a more-neutral level”. This announcement is as TD expected, and increasingly, consensus."
"Where to from here, however, sees consensus diverge. While we are the view that the RBNZ remains on a path towards a more neutral 4.5%, some see the cooling in housing as a means for the RBNZ to pause indefinitely, with the risk of over-tightening and an inverted yield curve should the RBNZ persist on attempting a return to neutral in less than two years. After today’s “pause” signal, the 12mth OIS strip is pricing no change in the cash rate until +25bp in a year’s time, in our view a little too conservative at this stage."
"After a blockbuster first quarter for GDP growth and exports, activity data for Q2 to date suggests less spectacular results, which is likely to be welcomed by the RBNZ. After all, the Bank merely wishes for a return to a more neutral cash rate, not shift into contractionary territory."