RBNZ to again leave the OCR at 1.75% - ANZ

Analysts at ANZ expect the RBNZ to again leave the OCR at 1.75% at its Monetary Policy Statement next Thursday (9am).

Key Quotes

“The Bank has maintained a cautious and watchful stance for a number of months now and we don’t see that changing. The Bank will still judge that “Monetary policy will remain accommodative for a considerable period.” 

“Since the September OCR Review we note: 

− There is more political clarity in many respects, but still plenty of uncertainty. Fiscal policy will become far more expansionary, but to what extent is unclear, particularly when it needs to be weighed up against possible housing and migration restrictions. 

− Housing market activity has remained soft. Turnover is the lowest since 2011 and annual house price growth is broadly flat. Post-election anecdotes have remained weak. − Forward growth indictors are more mixed. Consumer confidence is still decent, but business sentiment has waned. Job ads growth has cooled and our Truckometer is providing a soft signal for Q3. Weaker housing market activity portends potential negative spill-overs.  

− The NZD is meaningfully lower. It is ~4% lower than at the time of the OCR Review and ~6% lower than where the RBNZ assumed it would be in its August MPS projections. At the same time, export commodity prices have held up; that is growth positive. 

− Headline inflation surprised on the upside. Headline CPI rose 0.5% q/q in Q3, well above the RBNZ’s 0.2% q/q pick. While the majority of this surprise will have reflected food and petrol price moves, it does mean the RBNZ’s forecast of just 0.7% y/y inflation by Q1 2018 is looking far less likely.

− But core inflation was broadly stable. Non-tradable inflation did record its biggest seasonally adjusted quarterly increase in close to four years and the weighted median and trimmed mean both sat at 2%. However, the Sectoral Factor Model – the RBNZ’s preferred measure – was stable at 1.4%. 

− The labour market is tight. We suspect the RBNZ will discount the outsized Q3 moves in employment and participation, but the unemployment rate at 4.6% is a solid signal. Plenty of questions remain over wages though, with private sector wage inflation steady outside of the impact of the care and support workers settlement.”