Given the rate cut during the last meeting, there is a pretty broad consensus that we won’t be getting any action out of the RBNZ this time around.
That doesn’t mean we won’t get a reaction from the markets, however. This is especially true since there are strong expectations of a rate cut at the next meeting in August.
Our attention will be on the vote count now that the RBNZ has debuted its committee model. Then we’ll be scrutinizing the accompanying Rate Statement to see what has changed in the bank’s view compared to the last meeting. The key here is whether the market has gotten a little ahead of itself in projecting another cut so soon.
As far as the breakdown of the votes, we’ll be looking to see if there is a split. This is only the second time for a committee decision, so analysts are still studying to see what patterns can be gleaned from the votes.
Last time the decision to cut was unanimous from the seven-member group. Now we want to see if there is a split in views. This time around there is no press conference in the schedule.
When a bank takes action, there almost always is a press conference. So this further cements the view that no action will be taken. This removes one risk event from the calendar, but ups the emphasis on the Rate Statement. This means all the volatility from the event will be concentrated at the same time.
The Changes and Outlook
There were three key takeaways from the last meeting: ]
1) The bank adjusted the OCR (the reference rate) to account for a further cut this year.
2) Saw ongoing headwinds for employment and growth.
3) Global slowdown expected to impact domestic employment and inflation, but that policy was currently “balanced” to “adequately” deal with it.
Changes in these views are what would be expected to move the market. Since the last meeting, we haven’t gotten any official data on CPI or employment, since those are quarterly reports. It wouldn’t be surprising that the bank would affirm this outlook pending the release of the data after the end of this month.
The Rate Path
Last time, the central bank cut their expectation of the OCR for September to 1.59% from 1.75%. This would bring it in line with the cut they applied during the meeting. This is an indication that they don’t expect to cut the rate at the next meeting.
However, that view might change depending on the data we get during July. If the bank cuts their September projection again, this would all but guarantee a rate cut in August.
The key is going to be where they expect the rate to be in June 2020. They projected it at 1.36%, taking into account another rate cut before then. If they maintain that expectation, it would continue to leave open the possibility of a rate cut in the near future. The bank also expected to keep rates that low until at least the end of next year.
It’s Not Just Domestic
The RBNZ is evidently paying attention to the global situation. And with geopolitical risks rising due to the tension in the Straits of Hormuz, there has been a bump up in the price of crude. That could translate into higher inflation in the near term, and alleviate some of the pressure on the bank to cut rates.
The bank is meeting before the G20, so its projections won’t be able to take into account if there is any good news on the trade front. It’s noteworthy that they continually emphasized their view that risks were primarily external, and we could expect that to be repeated this time around as well.