NZ: Market thinks Aug RBNZ cut is an 80% chance - Westpac

Imre Speizer, Research Analyst at Westpac, suggests that the market pricing for an OCR cut in August has jumped from 30% to 80% during the last week or so.

Key Quotes 

“The catalysts for that have been the impromptu RBNZ economic assessment on Thu, and today’s weak CPI data.

The former appears to be an attempt by the RBNZ to more clearly communicate its thoughts, following the hawkish market reaction to Spencer’s earlier comment that a lower OCR posed financial stability risks. The RBNZ seemed to be concerned enough by that market response that it has announced an interim assessment just three weeks ahead of its full economic assessment on 11 August. The statement will not include a decision on the OCR itself, but is likely to provide guidance on the direction of monetary policy, as in regular OCR review statements. (Recall that the RBNZ’s previous guidance was: “Further policy easing may be required to ensure that future average inflation settles near the middle of the target range.”)

But with Q2 CPI slipping back to 0.4% yoy, the RBNZ will have its work cut out engineering inflation back to 2%. A lower OCR will be required.”