RBNZ to cut to 2.0% in June - Westpac

Imre Speizer, Senior Market Strategist at Westpac, notes that the market pricing for the OCR receded sharply last week as bets on an RBNZ cut in June were exited.

Key Quotes

“Markets believe surging NZ house prices and looming Fed rate hikes (in turn likely to result in a weaker NZ exchange rate) are factors which will deter the RBNZ from easing. The chance of a June cut has been reduced to 20% (from 80% a month ago), while an August cut is only a 50% chance.

We disagree, expecting the RBNZ to cut to 2.0% in June and then remain on hold for some time, while leaving the door open to further cuts if necessary. The one big surprise to the RBNZ since the March MPS has been the strength of the NZD TWI which is 3% higher than its forecast. That argues for an even lower OCR than 2.0%, and we wouldn’t be surprised to see both a reduction in the OCR and a further lowering of its interest rate projection.”