RBNZ Tracker: Why wait redux?

Three months is a long time

Back in July and prior to the RBNZ’s August Monetary Policy Review (MPR) we asked “Why wait?” and argued against consensus and for the MPC to get on with easing monetary policy. They did, and cut 25bps.

The 50bp OCR reduction in October was a reasonably consensus call.

For tomorrow’s MPR, most are expecting a 50bp easing, taking the OCR to 4.25%. Markets are toying with the chance of a 75bp cut, with -57bps priced in. Nearly 100bps of OCR cuts are priced in by February next year.

Governor Orr likes to be bold. Our view is that a 75bp cut is more than a 50% probability.

Get the OCR to a still-restrictive setting of 4%, pack-up for the holidays and come back with significant policy optionality at the mid-February MPR and see how the economy - and geopolitics - have tracked over the holiday season.

If the MPC chooses to ease by 50bps it is likely to be accompanied by a dovish outlook.