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11 Mar 2014
Flash: RBNZ to start hiking rates on Thursday - Westpac
FXStreet (Bali) - In Thursday’s Monetary Policy Statement (MPS) the RBNZ will finally begin the journey back to more normal interest rate settings, notes Imre Speizer, FX Strategist at Westpac.
Key Quotes
"With the RBNZ having stated in January that this adjustment process will begin “soon”, market participants are now widely anticipating an increase in the Official Cash Rate (OCR) from 2.50% to 2.75%."
"The more important message in the Statement will be around the pacing of future OCR moves once the tightening cycle is under way. While the RBNZ’s projected path of interest rate hikes could still reasonably be described as ‘gradual’ compared to past tightening cycles, it won’t leave much room for dallying – consecutive hikes at some stage are a given, and in our view are more likely to occur up front."
"We suggest that the ‘bias’ paragraph of the media statement accompanying the MPS could be along these lines: “The Bank will increase the OCR further in upcoming reviews, as needed to keep future average inflation near the 2 percent target mid-point. The scale and speed of the rise in the OCR will depend on future economic indicators.”
"Our central scenario (to which we assign a 70% chance) sees the RBNZ noting stronger economic growth, inflation and inflation expectations, only partly offset by a higher exchange rate and housing slowdown. The 90-day track would be elevated by 25bp."
"2yr swap rates would only rise by 2bp in response, since this scenario is widely expected. A dovish scenario (10% chance) would show a 90-day track little change from December. 2yr swap rates would fall 8bp. A hawkish scenario (20% chance) would show an elevated and steeper track. 2yr swap rates would rise 10bp. OIS pricing currently implies an OCR of 2.75% on 13 March 2014 and 3.62% by December 2014."
Key Quotes
"With the RBNZ having stated in January that this adjustment process will begin “soon”, market participants are now widely anticipating an increase in the Official Cash Rate (OCR) from 2.50% to 2.75%."
"The more important message in the Statement will be around the pacing of future OCR moves once the tightening cycle is under way. While the RBNZ’s projected path of interest rate hikes could still reasonably be described as ‘gradual’ compared to past tightening cycles, it won’t leave much room for dallying – consecutive hikes at some stage are a given, and in our view are more likely to occur up front."
"We suggest that the ‘bias’ paragraph of the media statement accompanying the MPS could be along these lines: “The Bank will increase the OCR further in upcoming reviews, as needed to keep future average inflation near the 2 percent target mid-point. The scale and speed of the rise in the OCR will depend on future economic indicators.”
"Our central scenario (to which we assign a 70% chance) sees the RBNZ noting stronger economic growth, inflation and inflation expectations, only partly offset by a higher exchange rate and housing slowdown. The 90-day track would be elevated by 25bp."
"2yr swap rates would only rise by 2bp in response, since this scenario is widely expected. A dovish scenario (10% chance) would show a 90-day track little change from December. 2yr swap rates would fall 8bp. A hawkish scenario (20% chance) would show an elevated and steeper track. 2yr swap rates would rise 10bp. OIS pricing currently implies an OCR of 2.75% on 13 March 2014 and 3.62% by December 2014."