RBNZ May Monetary Policy Statement Instant View
Data Flash (New Zealand) NZ:
As widely expected, the RBNZ left the cash rate unchanged at 5.75%.
The Bank referred to buoyant domestic trading conditions and corresponding upside inflation risks, but also noted that there was a risk of a further deterioration in world economic conditions.
While the RBNZ's central forecast track assumes a re-tightening in the first quarter of next year, the Bank said that a weaker-than-expected global picture and its subsequent impact on NZ could trigger a further series of rate cuts. The alternative scenario printed in the MPS projects the OCR reaching 5.0% during the first half of next year.
In our view, both the RBNZ's central scenario (US recovers, RBNZ re-tightens early) and the alternative scenario (US weak, Fed continues to ease aggressively, RBNZ follows) imply a widening OCR/Fed Funds differential.
The market viewed the statement as relatively hawkish, with both the bill futures and bond market weaker.
Ulf Schoefisch, Chief Economist