RBNZ: Market pricing 60% chance of OCR cut in November - Westpac

Imre Speizer, Research Analyst at Westpac, suggests that the market pricing for a 25bp OCR cut by RBNZ to 1.75% by the 10 November meeting implies a 60% chance, much lower than a few weeks ago.

Key Quotes 

“NZ economic news continues to be good, and has caused a few analysts to back away from forecast RBNZ easing.

We expect the RBNZ to hold the OCR at 2% on Thursday, but to cut in November and then sit on hold for a lengthy period. In August the RBNZ signalled that another cut in November was highly likely, with the possibility of a further cut beyond this. Developments since August have been more or less balanced for the inflation outlook. GDP and dairy prices have risen more than expected, but the exchange rate is stronger and the housing market has cooled a little.

Consequently, we expect Thursday’s one-page statement to deliver the same bottom line as in August: “...further easing will be likely.” That should be market neutral. The main risk is that the guidance sentence could be watered down to “...further easing may be likely.” If so, markets would sharply pare their expectations of another cut, and swap rates and the NZD would rise sharply.”