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Market News

RBNZ governor unlikely to go out with a bang


It might be Reserve Bank Governor Graeme Wheeler's last monetary statement but don't expect any radical change in tack on interest rates this Thursday morning.

The official cash rate will stay on hold at 1.75 per cent.

Economists expect the statement to stay firmly in neutral with forecasts predicting no movement in rates until 2020.

Wheeler was likely to emphasise the softer tone to recent economic data, and the RBNZ's discomfort with the high exchange rate, Westpac chief economist Dominick Stephens said.

Any shift in tone was likely to be on the dovish side and it was possible the Reserve Bank could move to "expunge any hint of hikes from its OCR forecast," he said.

The RBNZ's current forecasts have the next rates move as a hike - despite being very distant.

A more dovish tone may surprise markets causing swaps rates and the currency to fall, Stephens said.

ANZ's Cameron Bagrie agreed that softer data - including weaker inflation, lower employment rate and a weaker housing market - could mean a shift to a more dovish tone with the removal of implied hikes from the forecasts.

In fact, a case could even be made for the next move to be a cut, he said.

But it was not likely that Wheeler would "rattle the cage" at this point. And he was picking an "ultra-neutral" outlook.

"So an easing bias is a leap too far and we think the RBNZ will rely on the flexibility within its framework to ebb and flow with recent developments."

ASB's Nick Tuffley said he expected "a more cautionary tone".

"The balance of events since the June OCR decision point to less inflation pressure," he said. "As a result, the RBNZ's OCR forecast track is likely to show rate increases will occur in early 2020, three to six months later than in its May MPS forecasts."

"We also don't completely rule out the RBNZ lowering its 2017/18 forecasts slightly if it wanted to signal that there is a higher risk that it cuts the OCR over the next year."

It wasn't all downward pressure on inflation though, Tuffley noted. Dairy prices had firmed and Fonterra had lifted its payout. There was also added fiscal stimulus in the Government's Budget and the prospect of more to come depending on the election result.

Westpac's Steven's noted that, as well as the election, there was also major uncertainty around the housing market and whether it would bounce back in spring.

Meanwhile, as for Wheeler's last hurrah, Stevens said: "the Reserve Bank may be conservative ahead of its own leadership handover."

Wheeler is stepping down on September 26, just three days before the election. Because of the proximity to the general election deputy-governor Grant Spencer will act as care-taker for six months while a long term replacement is found.


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