Rate cut bets on the rise for the RBNZ - Bloomberg

As reported by Bloomberg, markets are beginning to price in expectations of a further interest rate cut from the Reserve Bank of New Zealand (RBNZ) as swaps begin to climb in expectation of a rate slash between August and February.

Key quotes

"The chance of the Reserve Bank lowering the official cash rate in February has risen to 30 percent from virtually zero a month ago, according to swaps data compiled by Bloomberg. There’s a 44 percent of a cut by August. While no economists predict the RBNZ will ease policy, some say the risk is growing.

“A cut is more likely than a hike,” said Sharon Zollner, chief economist at ANZ Bank New Zealand in Auckland, who forecasts the cash rate will remain at a record-low 1.75 percent for the foreseeable future. “Is it time to definitively call cuts? We’re leaning that way but are not over the line yet.”

Markets began pricing in the risk of a cut after the RBNZ said Aug. 9 it had no plan to raise the cash rate until 2020 and raised the prospect of lower borrowing costs under a scenario where gross domestic product failed to improve. Assistant Governor John McDermott said the central bank was being pushed nearer to a “trigger point” on rates and it wanted to see evidence that growth was accelerating by the end of the year.

Business confidence fell to a 10-year low in August while investment and employment intentions also tumbled, according to the ANZ Bank’s monthly survey. RBNZ Governor Adrian Orr has said the biggest risk to the central bank’s outlook is weak business sentiment starting to influence investment decisions and leading to lower output."