VIEW: UBS note that "the RBNZ's emphasis.......>

RBNZ: VIEW: UBS note that "the RBNZ's emphasis that the next move could be a cut

caught mkts by surprise. While it could be interpreted that the RBNZ has added

growth targeting to its new mandate, the reality is likely to be more subtle.

The bank has not met its inflation target despite a positive output gap.

Therefore, the bank is concerned that if the recent slowdown persists, it will

likely take even longer to meet its inflation mandate. In light of the bank's

commentary, we have pushed out our exp. of the next rate hike to Nov '19 (prev.

May '19). Actual growth hasn't been that far below potential. Instead, it is the

drop in business confidence to multiyear lows which is causing the angst. Bear

in mind that the new PTA "seeks to avoid unnecessary instability in output."

While it is true that core inflation has been very slow to respond to the

closure of the output gap in NZ, pipeline inflationary pressures are building.

The message from the RBNZ is clear: if growth does not accelerate a rate cut is

on the table, if not delivered. But the degree of growth disappointment that

would be required to deliver a cut is unclear."