NZGBS: Strong Post-RBNZ Rally, 74bps Of Additional Easing By November

NZGBs closed 6-13bps richer on the day, with a steeper 2/10 curve, after the RBNZ cut the OCR 25bps to 5.25%.

• Governor Orr said that today’s 25bp rate cut was not a difficult decision as the RBNZ is now “confident” about inflation returning to target due to pricing behaviour adjusting to lower inflation and greater spare capacity.
• Also, a 50bp move was discussed, but the MPC took the cautious approach, and the revised OCR path reflects this. Future cuts will be data-dependent.
• The significant change in forecasts was discussed and Orr said this was typical of turning points. The RBNZ had noted risks in both directions in May and that the growth risks had materialised. The possibilities are now more balanced.
• Swap rates are 7-13bps lower on the day.
• RBNZ dated OIS pricing is 10-18bps softer across meetings after the RBNZ Decision. The market had attached a 58% chance of a 25bp cut today.
• The market is pricing another 32bps of easing for the October meeting and an additional 74bps by November.
• RBNZ Governor Orr will front of the Parliament Select Committee on MPS tomorrow.
• Tomorrow, the NZ Treasury plans to sell NZ$225mn of the 4.50% Apr-27 bond, NZ$200mn of the 4.25% May-34 bond and NZ$75mn of the 1.75% May-41 bond.