RBNZ Leaves OCR Unchanged - Dovish Statement

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RBNZ Leaves OCR Unchanged - Dovish Statement

OCR left at 5.75% and RBNZ noted that, while there may be need further rate hikes at some point, it can afford to wait.

Statement made reference to weaker global outlook, weaker commodity prices and stronger NZD, which all help to slow domestic growth and inflation.

RBNZ notes that domestic growth momentum is already slowing.

RBNZ's central projections show peak in 90 day rates of 6�%, suggesting one or possibly two more rate hikes over the next 12 months. However, the Bank noted that `. we are not treating the potential need for a further rise in interest rates as urgent, or at all certain.'

We consider those comments to be consistent with our call that no further rate hikes will be implemented during this cycle. The domestic economy is likely to slow sufficiently to enable inflation to fall to around 2%, making further rate increases unnecessary.

The RBNZ's projections also imply policy easings beginning in late 2003.

Initial market reaction: second bill contract rallied 18 bps, while bond yields 12-14 points are lower; no NZD reaction.

Ulf Schoefisch, Chief Economist

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