RBNZ May Monetary Policy Statement Instant View

Data Flash (New Zealand) NZ:

As widely expected, the RBNZ left the cash rate unchanged at 5.75%.

The Bank referred to buoyant domestic trading conditions and corresponding upside inflation risks, but also noted that there was a risk of a further deterioration in world economic conditions.

While the RBNZ's central forecast track assumes a re-tightening in the first quarter of next year, the Bank said that a weaker-than-expected global picture and its subsequent impact on NZ could trigger a further series of rate cuts. The alternative scenario printed in the MPS projects the OCR reaching 5.0% during the first half of next year.

In our view, both the RBNZ's central scenario (US recovers, RBNZ re-tightens early) and the alternative scenario (US weak, Fed continues to ease aggressively, RBNZ follows) imply a widening OCR/Fed Funds differential.

The market viewed the statement as relatively hawkish, with both the bill futures and bond market weaker.

Ulf Schoefisch, Chief Economist

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