RBNZ: Still looking to ease again in November – Deutsche Bank

Research Team at Deutsche Bank, suggests that the recent run of activity data in NZ has generally been pretty robust as the economy grew 3.6% in the year to June, consumer confidence is rising and house prices are up.

Key Quotes

“Against this backdrop there was ample scope for the RBNZ to be a little less dovish when it reviewed the Official Cash Rate (OCR) on 22 September. Instead the RBNZ tended to downplay the upbeat news. For instance, “while dairy prices have firmed….…the outlook for the full season remains very uncertain.” And though “house price inflation remains excessive……there are indications that recent macro-prudential measures and tighter credit conditions…are having a moderate influence.

The Bank’s focus is very much on the high exchange rate and low headline inflation. Of particular concern, “the sustained weakness in headline inflation risks further declines in inflation expectations.” This leaves the RBNZ concluding that “further policy easing will be required to ensure that future inflation settles near the middle of the target range.” As a consequence we are still looking for the RBNZ to ease again in November. The level of the exchange rate will be a critical element in this decision, with the RBNZ stating explicitly that “a decline in the exchange rate is needed.”