NZGBS: Sharply Richer After RBNZ Leaves OCR At 5.50%

NZGBs closed sharply richer with yields 10-14bp lower on the day after the RBNZ decided to leave the OCR at 5.50%. The 2/10 cash curve is steeper.

• According to the RBNZ, the level of interest rates is constraining spending and inflation pressure as anticipated and required. The Committee agreed that the OCR will need to remain at a restrictive level for the foreseeable future, to ensure that consumer price inflation returns to the 1 to 3% annual target range, while supporting maximum sustainable employment. Note we get Q2 inflation data next Tuesday.
• Swap rates are 6-8bp lower after the decision, and 11-13bp lower on the day.
• RBNZ dated OIS is 2-12bp softer across meetings, Apr’24 leading. The market had given a 25bp hike today a 10% chance. Terminal OCR expectations have softened to 5.64% (Nov'23) versus 5.81% at the start of the week and 5.67% on Friday.
• Tomorrow the local calendar releases REINZ House Prices, Manufacturing PMI, Food prices and Retail Card Spending data.
• Attention now turns to the release of US CPI data later. Consensus puts core CPI inflation at 0.3% m/m in June versus 0.44% in May.