NZGBS: Closed Slightly Cheaper Ahead Of The RBNZ Policy Decision

NZGBs closed flat to 2bps cheaper but around the session’s best levels ahead of tomorrow’s RBNZ Policy Decision. Updated staff forecasts will also be released.

• The RBNZ is unanimously expected to leave rates at 5.5% as it is yet to be convinced that inflation will sustainably return to target. We don't expect the tone of the statement or the updated projections to be significantly changed with guidance that “a restrictive monetary policy stance remains necessary” retained.
• Given elevated non-tradeables inflation, the MPC will likely still want to see a couple of quarters of CPI data to determine if domestic price pressures have eased sufficiently. With Q3 CPI not released until October 16 and only one meeting left before year end thereafter, it looks like the RBNZ’s prolonged hold will continue through this year. (See full preview here)
• Swap rates closed 1bp lower to 1bp higher, with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed little changed across meetings. There's a 7% probability priced in for a 25bp hike at tomorrow’s meeting.
• The pricing level of 5.52% for the May meeting also represents the anticipated terminal OCR. By year-end, a cumulative 45bps of easing is factored into the pricing.