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Deutsche Bank RBNZ November MPS

Data Flash (New Zealand)
RBNZ November Monetary Policy Statement

::::::::::::::August RBNZ::::::: DB::::::: Market:::::Actual RBNZ
:::::::MPS:::::::Expectations Expectations November MPS
::::::::::::::::::::::::::::for November::::Nov. MPS
::::::::::::::::::::::::::::::::MPS::::::: (Median)

Official:::::::4.5%:::::::::::5.0%::::::::::::5.0%::::::: 5.0% Cash Rate

::::::: 90d TWI MCI 90d TWI MCI 90d TWI MCI::::90d TWI MCI

H2 1999 5.0 57.4 -175 5.0 55.8 -300 5.0 55.5 -325::::::::::::::
H1 2000 5.4 58.0 -75 5.7 55.8 -250 5.7 56.3 -188 5.8 56.5 -175
H2 2000 5.5 58.7::::0 6.1 56.9 -100 6.1 58.0::::0 6.3 57.9::::0
H1 2000 5.7 59.1 +50 6.5 58.0 +25 6.5 58.9 +70 6.6 58.9 125
H2 2001 6.0 59.4 +100 6.9 58.9 +150::::- -::::-:::::6.6 59.5 175

:::::::::::::: August RBNZ::::::: DB::::::: Market:::::Actual RBNZ
:::::::::::::::::::::MPS:::::::Expectations Expectations November MPS
:::::::::::::::::::::::::::: for November::::Nov. MPS

:::::::::::::::::::::::::::::::::::MPS::::::: (Avg.)

GDP (Mar yrs, aa%):::::::::::::::::::::::::::::::::::::::::::::::::::::

2000 :::::::::::::: 3.0:::::::::::2.6:::::::::::2.6:::::::::::2.6
2001::::::::::::::::3.8:::::::::::4.0:::::::::::4.0:::::::::::4.1
2002:::::::::::::: 3.5 ::::::: 3.4:::::::::::3.4:::::::::::3.8

CPI (qtr.%):::::::::::::::::::::::::::::::::::::::::::::::::
Dec qtr 1999::::::: 0.6:::::::::::0.9:::::::::::0.7:::::::::::0.9
Mar qtr 2000::::::: 0.3:::::::::::0.6:::::::::::0.5:::::::::::0.5
Jun qtr 2000::::::: -::::::::::::0.5:::::::::::0.5:::::::::::0.6

CPI (a%)::::::::::::::::::::::::::::::::::::::::::::::::::::::
H2 1999::::::::::::::1.6:::::::::::1.7::::::::::::-::::::::::::::
H1 2000::::::::::::::2.1:::::::::::2.6::::::::::::-::::::::::::2.5
H2 2000::::::::::::::1.5:::::::::::2.3::::::::::::-::::::::::::2.1
H1 2001::::::::::::::1.4:::::::::::1.9::::::::::::-::::::::::::1.6
H2 2001::::::::::::::1.4:::::::::::1.6::::::::::::-::::::::::::1.5

CPI (a%):::::::::::::::::::::::::::::::::::::::::::::::::::::

March 2000:::::::::::2.2:::::::::::2.6:::::::::::2.3:::::::::::2.5
March 2001:::::::::::1.4:::::::::::1.9:::::::::::1.8:::::::::::1.7
March 2002:::::::::::1.5:::::::::::1.6:::::::::::1.6:::::::::::1.6

The RBNZ raised the OCR by 50 bps to 5.0% - this was in line with average market expectations. The RBNZ projects 90-day rates to rise to 6.6% over the next two years (compared to 6.0% in the August statement).::::The steeper interest rate profile largely reflects a somewhat higher projection of medium-term inflation pressures as a result of a stronger world economy together with an on- going recovery in domestic demand. The RBNZ assess that the decline in GDP over the June quarter was an aberration, with the economy expected to bounce back strongly during the September quarter. In terms of the MCI, the RBNZ projects a steeper track, with a lower starting point and a higher endpoint in two years time (+175 versus +100). The projected inflation track is projected to peak at 2.6% in early 2000 (driven largely by one-offs) and fall back gradually to 1.7% and 1.6% respectively over the two following years. On the whole, the statement is largely as expected with the only concern surrounding the conditionality of the interest rate track dependent on the projected recovery in the TWI. The market reaction to the statement was very muted. The statement is likely to be seen as credible and measured. This should provide some support for both the NZD and bonds, but from here the key issue is how the economy develops. We expect the numbers to be stronger than the RBNZ's projections, which would gradually impact on interest rate expectations.

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