NZ interest rates: Short-end anchored, but long end to follow US higher - Westpac

RBNZ November MPS maintained a neutral stance for monetary policy, made mixed revisions to its forecasts, and upgraded the OCR projection slightly, points out the research team at Westpac.

Key Quotes

“Markets agreed with the on-hold stance but factored in the new OCR track as well as potentially significant fiscal stimulus and shifted pricing for distant meetings higher. Market pricing implies a rate hike by Nov-18, compared with Westpac’s forecast of Q4-19 and the RBNZ at Q4-19/Q1-20.”

“NZ curve continues to slavishly followed US long-end yields, a result of stable NZ monetary policy combined with the close relationship between NZ longend yields and US long-end yields. For the NZ 2-10yr swap curve, we target 115bp by year end and 130bp by Q1 2018.”

“NZGB market is pricing the risk of increased government spending, with implications for borrowing and therefore the supply of NZGBs.”