Reserve Bank of New Zealand rate hike – round up of analyst reactions (where to now?) via ForexLive

ANZ:

• Statement was “about as dovish as it could be without explicitly moving to a neutral bias”
• say the RBNZ is more comfortable with the economy and inflation ” “the risk profile is more nuanced (a bit more downside has been opened up)”
• On the currency, the RBNZ say “the currency is still problematic”
• Forecast for the RBNZ to be on hold until March 2015, BUT this does not mean “the risk of a December 2014 move is nil and markets need to be wary of this”

Westpac:

• The RBNZ “explicitly signalled a pause in the tightening cycle, again widely expected, although some market participants may interpret it as a halt to the tightening cycle.”
• “Perhaps the main surprise was the language regarding the high NZD exchange rate, “there is potential for a significant fall.” open to interpretation as a veiled intervention threat. Otherwise, the content of the one-page press release was largely as expected.”

ASB Bank chief economist Nick Tuffley:

• “Our view remains unchanged, we think the Reserve Bank is on hold until December, and they will start raising rates again then, but at a far more gradual pace”

Bank of New Zealand (BNZ):

“In advance of today's OCR review we believed that the RBNZ would do four things:

• - Raise the cash rate to 3.5% from 3.25%;
• - Signal a pause in the tightening cycle;
• - Maintain a tightening bias with a desire to see the cash rate eventually move back towards neutral; and
• - Suggest that the timing and extent of the next moves would be entirely data dependent with a focus on the currency.
• Moreover, we suggested that the RBNZ Governor would highlight his ongoing concern at the overvaluation of the NZD.

This has proven to be exactly what the RBNZ has done

• The RBNZ Governor could not have been more aggressive in his comments on the currency if he had tried: “With the exchange rate yet to adjust to weakening commodity prices, the level of the New Zealand dollar is unjustified and unsustainable and there is potential for a significant fall”

The RBNZ must have been overjoyed by the market's response to these comments and the OCR review more generally: the NZD has fallen three quarters of a cent; a 50/50 chance of a rate hike is priced in for December and, while there has been a modest decline in swap yields, a firm upward slope in the rates curve remains with the ten year swap sitting at 4.71%.

• Our forecast rate track remains unchanged as a consequence of today's statement. We forecast no change in rates in either September or October and a resumption of the tightening cycle in December. We have the cash rate at 4.75% at the end of 2015 and an eventual peak of 5.00%,”

Citigroup

• Still saying the next hike will be in December
• Said the statement from the RBNZ today is a “well-crafted policy statement that provides clear guidance for the market”
• Its a “pause and not the end of monetary normalization”
• “Our view has been that after the July OCR decision, the September and October decisions would be for no further changes. We still hold this view and look for the next major guidance in policy to come in seven week's time with the publication of the September MPS.”

posted via ForexLive