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    The RBNZ’s Monetary Policy Statement wrap up - WestpacRoss J Burland

    Analysts at Westpac noted the RBNZ’s Monetary Policy Statement (MPS) this morning and offered a review.Key Quotes:"RBNZ  held the OCR at 2.25% and retained an easing bias, signalling one more cut to come via the 90d interest rate forecast which was unchanged. The overall economic assessment was slightly more positive than April’s. The market reacted as we would have expected, the NZD and NZ interest rates higher.The policy guidance paragraph was: “Monetary policy will continue to be accommodative. Further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data.”, identical to April’s.The 90-day interest rate forecast flatlines at 2.1%, unchanged from the March MPS version. This continues to signal one more rate cut in this easing cycle but says little about timing.The NZD exchange rate narrative was almost identical to April’s, apart from addional emphasis on the elevated currency’s negative effect on inflation: “The exchange rate is higher than appropriate given New Zealand’s low export commodity prices. Together with weak overseas inflation, this is holding down tradables inflation. A lower New Zealand dollar would raise tradables inflation and assist the tradables sector.”NZD/USD rose from 0.7010 to 0.7115, and should remain above 0.7050 today, eventually extending to around 0.7200 during the weeks ahead. AUD/NZD fell from 1.0640 to 1.0535, and should continue to probe the downside today, 1.0490 the next major target (Nov low).2yr swap rates rose 5bp from 2.27% to 2.32%, but should be capped by 2.35% given another easing is expected.  The 10yr rose from 2.85% to 2.88%%, leaving the 2-10yr curve slightly flatter at 56bp. We expect the curve to flatten further in the near term but steepen during the months ahead."


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