The New Zealand government bonds ended firmer on Thursday as investors increased bets that New Zealand’s central bank will cut its cash rate in the coming months from an already record-low 2.25 percent.
The yield on benchmark 10-year bond, which moves inversely to its price fell 1-1/2 basis point to 2.370 percent in the end session, yield on 7-year note also dipped 1/2 basis point to 2.090 percent and the yield on short-term 2-year note ended steady at 2.045 percent.
The ANZ, the fourth largest bank by market capitalisation in Australia is looking for a rate cut from the Reserve Bank of New Zealand in August, citing the Brexit vote.
Also, Westpac, an Australian bank and financial-services provider suggests that the market pricing for the OCR currently implies a 72 percent chance of a cut in August, compared to around 45 percent before the UK vote.
On Wednesday, the Reserve Bank of New Zealand released its annual statement of intent on Wednesday in which it reiterated that further easing could still be required.
They maintained that New Zealand's financial system remains sound and well placed to support economic expansion, but rapid increases in house prices and low dairy sector incomes pose financial stability risks.
Governor Wheeler said that the bank is working to understand the current drivers of low inflation and the consequences for the economy and monetary policy. He further added that the Bank is implementing changes in response to the regulatory stocktake and reviewing key financial policies to best support the soundness and efficiency of the financial system.
Similarly, New Zealand Finance Minister English said Brexit may increase attractiveness of NZ dollar and if things worsen significantly, the RBNZ has room for a rate cut. Credit rating agencies remain quite positive on NZ economy, he added.
On the other hand, the NZ Prime Minister John Key has downplayed market expectations that Friday's Brexit vote makes it more likely the Reserve Bank of New Zealand will cut the official cash rate (OCR) again on August 11. Though, economists and financial markets increased their expectations the OCR will be cut again from 2.25 percent after Britain voted 51.9 percent to leave the European Union, with most seeing a cut as near certain. Financial markets are also pricing in higher chances of further cuts to 1.75 percent or beyond.
The New Zealand’s benchmark S&P/NZX50 Index closed up 93.31 points to 6,897.52.
The material has been provided by InstaForex Company – www.instaforex.com