VIEW: BNZ Flatline OCR Track At 0.25% For The Foreseeable

BNZ note that "The most important detail in today's Monetary Policy Statement is the Reserve Bank's unconstrained interest rate track. According to the Reserve Bank's modelling process, the economy currently needs an effective cash rate of -150 basis points. Back in August the requirement was -240 basis points. In other words, the Bank thinks conditions have improved sufficiently to require 90 basis points less stimulus than was previously assumed.

• We have consistently held the view a negative cash rate would be unnecessary and, even, unhelpful. We are not suggesting the RBNZ will have come to the view that a negative rate would be unhelpful but it does appear to be backing away from it being necessary. This is important to us because the only reason we reluctantly adopted a negative cash rate into our track in the first place was because the RBNZ effectively told the market it would do so.
• Accordingly, we are now reverting to our original view and flatlining the cash rate track at 0.25% for the foreseeable future. This view of course, could change again as the environment evolves.
• Some believed that the RBNZ would adopt a more hawkish stance because of developments on the vaccination front. This was downplayed by the Bank. Importantly, this means that if the positive vaccine progress becomes even more positive then the RBNZ will be even less inclined to ease monetary policy.
• So it's now back to data watching. The balance of risks remains on the negative side but the risk profile is, at least for now, far more evenly balanced than it previously was."