RBNZ Rate Decision Preview

Jarratt Davis

Special Consultant to the FPA
The main event on Wednesday, the 9th May 2018 will be the RBNZ’s latest monetary policy decision.

This report will consist of four key releases. The Official Cash Rate, Rate Statement, Monetary Policy Statement, and Press Conference.

The RBNZ announce the Cash Rate, Rate Statement, and Monetary Policy Statement together. While the Press Conference takes place one hour later.

According to Westpac, the RBNZ will keep monetary policy unchanged. However, if there is a change, it will be in the direction of earlier hikes.

Westpac goes on to stress that a change in the RBNZ’s wording does not necessarily mean a change in stance. This is because this meeting will be the first meeting under the RBNZ’s new governor, Adrian Orr.

A change in the RBNZ’s rhetoric may be a reflection of Orr’s own style of communication. This could result in market volatility as the market interprets Orr’s comments.

If the market interprets the RBNZ as hawkish, we would expect NZD strength. Especially if the market does bring forward its rate hike expectations.

If the market interprets the RBNZ as dovish, we would expect NZD to weaken. Especially if rate hike expectations get pushed back.

A hawkish or dovish stance will most likely be the result of the RBNZ’s outlook for inflation.

If hawkish, the RBNZ will likely present an optimistic outlook for inflation. Which may also include the RBNZ dismissing Q1’s weak inflation report.

If dovish, the RBNZ will likely show a degree of concern over the inflation outlook. This may also include the RBNZ acknowledging or referencing Q1’s weak report.

Of course, the clearest signal would be a significant revision to inflation expectations.

A downward revision to inflation would be dovish, and an upward revision would be hawkish.