RBNZ: Market pricing 72% chance of OCR cut in November - Westpac

Imre Speizer, Research Analyst at Westpac, notes that the market pricing for a 25bp OCR cut to 1.75% by the 10 November RBNZ meeting continues to imply an 80% chance, little changed over the past two weeks.

Key Quotes

“September is now only an 8%% chance given the RBNZ has communicated that it prefers to move on MPS dates, and also because NZ economic data (notable dairy) has been strong. We expect the next OCR cut to be in Nov, but a further cut after that to1.50% will depend on developments in the economy and the exchange rate.

Right now the economy is in good shape, with data on economic activity over the past few months positive. This trend didn’t change last week, as the final indicators for June quarter GDP – building, manufacturing and wholesale trade surveys – showed solid gains in the quarter. And encouraging for growth going forward, dairy prices continued to march higher in last week’s auction, to be up nearly 30% from July.

We expect the June quarter national accounts, released on Thursday, to show the NZ economy in good shape. After decent, but not spectacular, growth of 0.7% in the March quarter, we’re estimating that quarterly growth picked up to 1% in June. This would push annual growth to 3.5% - the fastest pace since 2014.

One area locally where we could start to see some cracks appearing is the housing market, following the RBNZ’s announcement in July of tighter lending restrictions. We will get an update on how the market fared in August, with data from REINZ this week. We expect a drop in sales and cooling house price inflation over the next few months. But it will take time to determine if this is any more than a temporary impact, as was the case with previous LVR tightenings.”