RBNZ: Market is already fully pricing a 25bps cut - BNZ

Kymberly Martin, Senior Market Strategist at BNZ, suggests that this Thursday will be all about the RBNZ’s messaging and the market is already fully pricing a 25bps cut this week.

Key Quotes

“So unless the Bank pulls a 50bps cut out of the hat (not impossible, but highly unlikely in our view), any market response will be a result of the Bank’s indications of future action.

Heading into the meeting the market is pricing around a 1.62% trough in the OCR within the year ahead. i.e. it prices another 25bps cut after this week’s and a 50% chance of one after that. So the Bank will need to imply more cuts than this (through its updated 90-day bank bill track or discussion of ‘risks’) for yields to dip further on the meeting. There are always challenges in nuancing a message. The risk is the market views the Bank’s intentions as less dovish than current market pricing, and yields bounce off their lows. However, this would simply set up a better receiving opportunity in our view.

We now believe the Bank will ultimately be forced to cut the OCR to 1.50% by year-end.”