The RBNZ hiked the official cash rate again this morning, twice in as many meetings. Post, with details of the accompanying statement, is here: RBNZ announces 0.25bp rate hike

Reactions are coming in. ASB (formerly Auckland Savings Bank, then renamed to ASB Bank (not kidding, sort of like ATM Machine, yeah? … ) now renamed to the much more hip ASB, but I digress):

  • ASB economists expect the next OCR hike in June, with an extended pause then until December
  • They say that a June OCR hike is not as certain as the past two hikes have been

“The RBNZ did add in more explicit conditionality around the NZD, and we expect the NZD to remain firm. Commodity prices, if they fell further, might prompt a greater extent of concern than was evident in the latest statement. And data such as May 7 HLFS employment still have potential to surprise”

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JP Morgan’s senior economist Ben Jarman:

  • Says the RBNZ has acknowledged recent weakness in dairy prices but shrugged them off
  • More importantly, the RBNZ specified the conditionality of future hikes, explicitly linking it to currency
  • He expects the RBNZ to pause at next decision in June
  • “Admittedly, much will depend on the currency heading into the June meeting. In principle, the RBNZ’s increased sensitivity to the currency as in input to their decision process, shown today, should present headwinds for NZD..Arguably the terms of trade will be the tie-breaker, so dairy auction outcomes will be important to watch in setting the parameters moving into the June meeting”

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ANZ Bank New Zealand Ltd. in Auckland senior currency strategist Sam Tuck:

  • “The RBNZ showed absolutely no signs of waning in their determination to increase the benchmark rate and we saw the statement as being broadly hawkish. That determination will continue to support the New Zealand dollar via the yield channel.”

ANZ expects the next hike in June

And 50 bp in total before the need of 2014

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Reaction from Westpac (posted earlier, here)

  • The RBNZ noted that export commodity prices remain very high but auction prices had fallen 20% recently
  • The RBNZ said that the high exchange rate seemed to shift higher in importance, it was mentioned in the context of the speed and extent of future hikes
  • WPAC did say that they saw no surprises in the statement and they maintain their expectation for further 25bps OCR hikes in June, July and December.

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BNZ:

  • We, too, are strong believers that the NZD should soon start to fall and that the catalyst should be the recognition that declining dairy auction prices will eventually feed into the terms of trade.
  • The terms of trade decline will happen at the same time that US tightening talk increases, NZ GDP growth peaks and election uncertainty rises.
  • It is no coincidence that the RBNZ, in today’s statement, highlights the fact that “auction prices for dairy products have fallen by 20% in recent months”

For now, we will stick with our call that the RBNZ hikes in both June and July. At the time of writing, the market is pricing in an 85% chance of a hike in June and 34 basis points of hikes, cumulatively, over June and July. Given the currency risks that abound this is probably a fair reflection of where things should stand.