Following the latest RBNZ meeting in early June, when the RBNZ left its policy rate unchanged, we highlighted that a rate cut before the end of the year was very likely and that it could happen as soon as at the August meeting. However, the timing of the easing depended on inflation, exchange rates and the housing market. Over the past week, we have received new information on all those points and they are all suggesting an increased likelihood of a rate cut. This was confirmed in the economic assessment recently released by RBNZ, in which it said that “it seems likely that further policy easing will be required to ensure that future average inflation settles near the middle of the target range”. As such, we believe that the RBNZ will cut its policy rate by 25bp at the August.
The ECB kept all key policy rates unchanged and reinforced its forward guidance of interest rates expected to remain low for long. The ECB did not discuss potential changes to its APP programme, referring to the need for more information, including updated September macroeconomic projections. Because of the emphasis of the ECB’s flexibility in terms of policy adjustment, we maintain our call for the ECB to cut the deposit rate by 10bp in September, extending the duration of the programme to September 2017 and announcing technical changes to the programme’s design.
Copyright © 2016 Nomura, eFXnews™Original Article
