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By David Hargreaves
Well, if the Reserve Bank were worried, no one would be interested in the first decision of the new Monetary Policy Committee on cash flow in May, that is not necessarily the case.
Anyway, Governor Adrian Orr just made sure that the committee will have all eyes on the committee on May 8th.
Because, after Orr's prognosis that the next OCR move is more likely to be down, this means that the next review will actually be the first "live" since OCR was lowered to its current level of 1.75% in November 2016.
This is true, since that time, although the markets have scrupulously followed the OCR exams, there has never been a chance of a rate change. And it's been a long time now. We have all taken the habit of looking at this OCR figure on the RBNZ website as a hawk (or dove) at the time of OCR decision time.
The brief statement made Wednesday by Orr was so strong in wording that you would have to say anything else as the rate cut in May would be a surprise to the markets.
I was very surprised by the latest OCR statement for two reasons: first, it was a significant departure from the full monetary policy statement released last month and Secondly, the RBNZ generally did not like to announce large position changes during the interim period. OCR examines when the governor limits himself to a page explanation on a single page.
Notice, we have already clearly seen that Adrian Orr is his own person who likes to do the job of governor in his own style. So this is another thing to check under this governor – do not be too surprised if the RBNZ makes a major shift in position in non-monetary OCR exams.
Whatever the case may be, as noted earlier in this article, the May decision was going to be a historic moment in all cases, with the creation of the new Monetary Policy Committee of seven people.
And although I suppose we all thought that the first meeting of the CMP would be a meeting in which it was clear that the rates would not change, but the discussion would focus on the focus on the comments, we can now know for sure that there will be a real reality. debate on the opportunity to move the OCR or not.
The interesting thing about this is that the complete composition of the MPC is not yet known. We know that there will be four people from the RBNZ and three "external".
Given that Finance Minister Grant Robertson had previously indicated that the MBM would be appointed in mid-March, it must be assumed that this can not be too distant.
I wonder if at least part of the RBNZ's change of position on Wednesday is related to the likely composition of this committee and whether "outsiders" are likely to be people who tend to take a more "accommodating" approach.
Move
It is fair to say that the official position of the RBNZ has changed slightly in the recent decisions taken by the OCR. In the September decision, it was felt that the next move could be "up or down". In November, the word "low" was removed, but it returned to the wording of the February statement. However, at the press conference announcing the February decision, Orr had a hard time minimizing the importance of reintroducing the "down" reference. Well, there seems to be a purpose.
The main developments since then have been the comments of other central banks around the world of "accommodative" nature, as well as GDP figures well below the forecasts of the RBNZ.
I could have hoped, given the largely unchanged position of February, that the RBNZ would have kept about the same line on Wednesday.
By giving the market such a "dovish" surprise, the first meeting of the MPC is now organized as a meeting that will be watched with popcorn in hand and a great sense of anticipation. Nothing less than a rate cut in May and I suspect the markets will go bad, with certainly the currency retracing the massive fall (1c) against the US dollar immediately after Wednesday's statement.
And if the RBNZ cuts once, it will probably still be cut off. Thus, by the third or fourth quarter of this year, we could consider an OCR of only 1.25%.
What will happen to mortgages?
At interest.co.nz, for the past three or four years, we have often made a joke between us that we could all be very rich if we had a dollar every time we saw a headline in the mainstream media screaming: "Mortgage rates are as low as they will go!"
Well, guess what. If you thought they were low this month, you may just have to wait after May …
Earlier Wednesday I am of the opinion that the RBNZ was likely to further relax the rules applicable to banks high lending rate (LVR) and it was quite difficult to see the circumstances in which the housing market would restart. Maybe it was "something very unexpected" that could change the situation for the housing market. Another half percentage point reduction in interest rates on mortgages would certainly not slow things down.
But it goes without saying that the other question would be how far banks would impose reductions in OCR at mortgage rates. The best guess would be that they would only be transmitted partially (maybe less than half of them).
Whatever the case may be, the world of interest rates has become a lot more interesting. Roll on May and the MPC. I have my place in the first row.
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