**MNI POLICY: RBNZ Dovish As Risk Shifts From Infla To Growth

--Leaves OCR Unchanged at 1.75%

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of New Zealand left the official cash rate

unchanged at 1.75% Thursday and signaled the rate will remain on hold for longer

than previously expected. 

     Below are the key observations we made from Governor Adrian Orr's OCR

statement and the accompanying quarterly Monetary Policy Statement:

     --As flagged by MNI, the RBNZ tilted towards the dovish side as its worry

has now shifted from inflation towards growth (again rightly predicted by MNI).

This is well laid out in the RBNZ's two possible risk scenarios. The one where

inflation increases faster than expected in which case OCR is around 50 basis

points higher by 2021. The other is where GDP doesn't recover as expected and

remains below trend, and requires the RBNZ to reduce OCR by 100bps.

     --The RBNZ said it expects the OCR to remain at 1.75% through 2019 and

2020, longer than projected in the May statement. The 2% forecast for OCR is

pushed back to December 2020 versus March 2020 forecast in May.

     --The RBNZ reiterated the guidance that the direction of the next OCR move

could be up or down. It also repeated that the OCR would be kept at an

expansionary level for a considerable period to contribute to maximizing

sustainable employment, and maintaining low and stable inflation.

     --The RBNZ said there are welcome signs of core inflation rising and

inflation will rise towards 2% over projection period. But the forecast for

inflation to touch 2% is March 2021, the same as May. The RBNZ said the path for

the inflation may be bumpy and it will look through the volatility a

appropriate, and only respond to any persistent movement in inflation.

     --The RBNZ lowered the outlook on immigration based on recent slowing. The

RBNZ's key judgement is annual net immigration falls from 50,000 (was 60,000 in

May) in 2018 to 30,000 in 2020 (was 2021 in May).

     --The RBNZ said tightening in financial conditions is another downside risk

to the outlook in line with scenario it presented in May.

     --Global trade restrictions have a limited impact on the global growth

outlook, the RBNZ has judged, but also added there are risks of a more adverse

scenario.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

[TOPICS: MMNRB$,M$A$$$,M$N$$$,MT$$$$]