REPEAT:ANALYSIS:Threshold For RBNZ Cut May Be Low;Hsg Mkt Key

Repeats Story Initially Transmitted at 02:22 GMT Aug 9/22:22 EST Aug 8

By Sophia Rodrigues

     SYDNEY (MNI) - A push back in the timing of the first official cash rate

hike is considered the main theme in the dovish Reserve Bank of New Zealand's

statement Thursday but equally noteworthy is the risk of a cut in the OCR.

     That risk is not negligible and the threshold is pretty low. 

     Even if GDP picks up from 2.3% forecast for Q2 of this year, to 2.9% by Q2

next year, the RBNZ could lower the OCR twice in 2019 -- in Q3 and Q4, and

follow it up with two more cuts in Q1 and Q2 of 2020.

     The RBNZ's central scenario is for 2.7% GDP growth by the end of this year,

accelerating to 3.3% in Q2 of 2019 and to 3.5% by end of 2019. If that changes

to a 2.9% forecast for Q2 of 2019 and 2.8% by end of 2019, then the RBNZ would

likely cut.

     Earlier Thursday, the RBNZ left the OCR unchanged at 1.75% as widely

expected and signalled the rate could remain on hold for longer than previously

forecast. The RBNZ detailed two key risk scenarios -- one where inflation rises

faster than expected and require earlier rate hikes, and the other where growth

disappoints and requires rate cuts.

     --HOUSE PRICES KEY RISK

     The main risk to the RBNZ's growth forecast is weak business confidence and

house prices slowing more than their expectation. If these risks come to pass,

the negative output gap projected for the rest of this year and into early 2019

is likely to persist for longer, requiring the RBNZ to ease monetary policy.

     The RBNZ's forecast is for annual house price inflation to slow to 5.1% in

Q3 from 5.9% in Q2, and significantly slow from there to 2.6% in Q4 and further

to 1.8% by Q4 of 2019. 

     So if house prices disappoint RBNZ expectation and fall rather than just

slowing, it would have important implications for consumption, and thus growth

forecast, and could pave the way for a rate cut.

     The RBNZ's own judgement is that the risk for slowing household consumption

due to slowing in house price inflation and net immigration, is balanced.

     The other risk is that the weakness in business confidence seen in recent

surveys translates to persistently lower growth. The RBNZ has judged this is not

likely to be the case, so if it indeed hurts growth, it would be a reason for

the RBNZ to cut the OCR and provide boost to the economy.

     --HIKE SCENARIO MUTED

     The RBNZ's other scenario of inflation rising faster than expected and

requiring earlier-than-expected rate hikes appears muted compared with the rate

cut scenario.

     An earlier rate hike would require a central scenario of non-tradable

inflation accelerating to 3.0% by Q1 of 2020, compared with current central

scenario for 2.7% by then. The forecast for Q3 non-tradable inflation is 2.4%.

     If non-tradable inflation accelerates more than expected, the RBNZ would

likely hike in Q1 and Q2 of 2020. This would be around a year earlier than

RBNZ's current projection but would still be later than what many economists

forecast.

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