The RBNZ left the OCR unchanged at 1.75% in March as widely expected, and reaffirmed its recent clear shift to a neutral policy stance - consistent with Governor Wheeler’s earlier assessment that "the risks around the OCR are equally balanced", Goldman says.
The most important change to the accompanying statement was the observation of an "encouraging" 4% decline in the NZTWI and the omission of earlier commentary around persistent negative tradables inflation. The RBNZ also remained "positive" on the domestic growth outlook, discounted the weaker 4Q2016 GDP print as owing to "temporary factors", and continues to flag geo-political risks (and protectionism) as the major risk to the outlook
Looking to the May meeting, while the RBNZ is likely to remain on hold for now, Goldman expects upgrades to the Bank’s inflation forecasts and - possibly - a more constructive description for the global growth outlook
On the domestic side, the bank notes that underlying economic momentum has remained solid in NZ in 2017. Headline inflation surprised to the upside for a third consecutive quarter in 1Q17, and that the annual rate is both at a 5-year high and is materially above the mid-point of the RBNZ’s target band (and ~70bps above the RBNZ’s February MPS forecast). Moreover, the NZTWI is now ~5% lower than assumed in the February MPS, technically presenting further upside risks to the RBNZ’s inflation forecast over the coming quarters.
Although wages growth remains subdued for now, and Goldman acknowledges that it is difficult to foresee the RBNZ hiking the OCR until that changes, the labour market has continued its solid momentum in 1Q. Specifically, the unemployment rate fell to a post-GFC low, the participation rate is at an all-time high, and employment growth continues to outpace the solid growth in the labour force.“
The market expects the RBNZ to raise rates as soon as March 2018, much faster than the RBNZ forecasts. That is why a neutral tone could be sees as a dovish one by the market participants. source: Bloomberg