RBNZ: Damned if you do, damned if you don’t - BNZ

Stephen Toplis, Head of Research at BNZ, suggests that whatever the Reserve Bank of New Zealand does next week will be wrong.

Key Quotes

“Either the cash rate is reduced further stoking an already overheated housing market or, if no move is made, critics will accuse the RBNZ of a lack of commitment in getting CPI inflation to the mid-point of its target band. The RBNZ is on a hiding to nothing and, in this instance, we have more empathy with its plight than we might have had in the past.

That said, we believe the Bank has, in many ways, been the architect of its own demise. We have long warned that cutting interest rates further would fuel the excesses that we are seeing in housing (and other asset prices) and we still believe the RBNZ’s messaging has been somewhat off target.

While the Bank vehemently defends its communication (which, of course, it has to do) market pricing and investor feedback clearly shows that the degree of uncertainty over the Bank’s actions has been climbing. In part this is a reflection of heightened global confusion but, in addition, the RBNZ must accept some responsibility.

In our opinion, if the market understands central banks’ thinking then surprises on the day of rate-set announcements should be few and far between. Commentators have usually reached a strong consensus on the likely actions of the Bank on the day, and the market is usually close to fully pricing in the likely decision. The excitement for markets should not be focused on what the Bank does on the day but around what it says about future direction that may, or may not, alter market perceptions about the road ahead.”