Long term rates out of whack: Larger OCR cut all on

The RBNZ stated today that long-term interest rates have risen too quickly. There forecast recovery was premised on a low dollar and a relatively flat yield curve – however, it seemed a bit disingenious to suggest that we would have a foreseeable strong recovery and a flat yield curve 🙂 . However, this logic was based on a special assumption – a slumping terms of trade.

As a result, the bank is likely to slash rates by at least 50bp at the next meeting. This was already more likely than during the meeting given the exchange rate – as we’ve discussed. This is a big announcement on their part – effectively we may well be pushing towards the lower bound of the OCR. In this case, we need to think more carefully about our monetary policy …

There will be a post at 11am that points out some good suggestions on this issue.

Note that the general market also feels this way – hence:

nzdtwi_1_hourly

Source NBNZ

7 replies
  1. Alex Tarrant
    Alex Tarrant says:

    Matt

    A great chart for chart-spotters isn’t it.

    I logged on to the exchange rate charts just before the announcement, and they all suddenly started looking like Victoria falls.

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