The RBNZ left the OCR unchanged at 2.25% this morning, as expected by the market and the majority of economists. However, the guidance on further rate cuts was less emphatic than expected. Moreover, the language throughout the statement was either unchanged or more positive than in March.
The NZ dollar is tracking about 3% higher than the RBNZ's last projection. Meanwhile, benchmark rate cuts are not being passed on in the real economy. Higher bank funding costs show that the March OCR cut wasn't fully passed through into mortgage rates. On the basis of the above, the markets had expected a stronger easing bias from the RBNZ. But the language on the NZD in today's statement was no firmer than it was in March, and mortgage rates were conspicuous by their absence. The two-year swap rate rose from 2.19% to 2.26% post meeting.
Massive short squeeze ensued, the New Zealand currency strengthened as much as 1.4 per cent on the day to 0.6942 against the US dollar, putting it on track for its biggest rise since March 29. The kiwi spiked although the central bank made it clear that further easing could yet be on the cards.
“We still expect another 25bp OCR cut in June – indeed, the market's response actually increases the pressure on the RBNZ to do so. But today's statement suggests that the RBNZ is planning to call time on the easing cycle in the June MPS.” said Michael Gordon, Senior Economist at Westpac.
The material has been provided by InstaForex Company – www.instaforex.com