MNI PREVIEW: RBNZ Seen On Hold, May Soften Outlook On Data

By Lachlan Colquhoun

     LONDON (MNI) - The Reserve Bank of New Zealand is expected to leave

interest rates on hold Wednesday, with little change in their accompanying

statement, although there is an outside chance it may turn more dovish,

reflecting the weaker domestic economic data.

     Along with keeping the Official Cash Rate at a record low 1.75%, the RBNZ

is expected to repeat its February policy statement, when the RBNZ reintroduced

a more balanced rate outlook, saying "the direction of our next OCR move could

be up or down," adding that it expected to leave the rate unchanged "through

2019 and 2020", extending the period at which it sees rates on hold from

November's "into 2020".

     This took the RBNZ's stance back to that seen in August, having added a

hawkish tilt in November by removing the "up or down" phrase from the statement.

     GDP data for Q4 2018, published March 21, showed the economy grew 0.6% q/q,

with annualised growth at 2.3%, down from 2.6% in Q3. This is significantly

lower than RBNZ expectations of 3.0% growth for the year.

     Even unemployment has picked up, rising to 4.3% from 3.9%.

     Governor Adrian Orr is set to make a major speech on the RBNZ's new policy

setting framework on Friday, at which more details of the Bank's emerging

outlook may be revealed. The next Statement on Monetary Police is due with an

OCR decision on May 8.

     --CAPITAL REQUIREMENT INCREASE

     Another factor which could create conditions for the RBNZ to consider a

rate cut is the phasing in of new capital requirements for banks, which will

likely send commercial lending rates higher.

     While the RBNZ assessment is that the controls, which would lift capital

ratios for the major four banks from 12% to 16% and smaller banks to 15%, could

see market rates increase by 20 to 40 basis points the analyst community

believes the impact will be higher.

     Any rise in lending rates in a slowing economy would be inconvenient timing

for the RBNZ, with MNI understanding that in this scenario it would be forced to

look seriously at a rate cut as a next move.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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