RBNZ to hold OCR on hold at 1.75% this week - Westpac

Analysts at Westpac explained that they expect the RBNZ to keep the OCR on hold at 1.75% at Thursday’s Monetary Policy Statement, and to repeat the previous guidance. 

Key Quotes:

"This is market-neutral, but there’s a small risk of a dovish outcome. Overall, developments since the August MPS are slightly net positive relative to the RBNZ’s forecasts: lower house prices and GDP growth are more than offset by the lower exchange rate and higher near-term inflation."

"However, the latter will be seen as transitory, leaving the RBNZ with little need to tweak the OCR track."

"We expect that the policy paragraph will be a repeat of the phrases that have been used more-or-less unchanged for the past six meetings: “Monetary policy will remain accommodative for a considerable period."

"Numerous uncertainties remain and policy may need to adjust accordingly.” An unchanged OCR track and an unchanged policy paragraph (a 70% chance we think) should elicit little market reaction. Our dovish scenario (20% chance) has the OCR track decreased by a modest 10bp."

"In response, NZD/USD could fall by 0.75c and the 2yr swap rate by 5bp. A hawkish scenario (10% chance) has the OCR track increased by a modest 10bp. In response, NZD/USD could rise by 1.25c and the 2yr swap rate by 8bp."