RBNZ: Market pricing a 50% chance of an OCR cut in 2019 – Westpac

According to analysts at Westpac, RBNZ pricing fell further in January, with OIS rates currently implying a 50% chance of a cut by November 2019.

Key Quotes

“It is slightly more pessimistic than the RBNZ’s own OCR forecast (and Westpac’s) but understandable in the context of significant repricing for the Fed and ECB. Slower global growth is a factor common to most market expectations of central bank policy rates, including for the RBNZ.”

“An additional factor in NZ is the RBNZ’s proposed increase in bank capital requirements, which could ultimately require the RBNZ to reduce its OCR forecast by around 25bp (Westpac still forecasts OCR hikes to start in November 2020 but at a slower pace, although we’d argue the neutral OCR is likely to remain at around 3.5%).”

“All the above combined to push NZ 2yr swap rates to a fresh record low of 1.87%. We see potential for further declines, particularly if global growth concerns intensify or global asset market declines resume.”