RBNZ: Slightly “hawkish” development for markets - Westpac

Dominick Stephens, Research Analyst at Westpac, points out that the Minister of Finance and the Reserve Bank today released the Policy Targets Agreement for New Zealand economy under which incoming Governor Adrian Orr will operate and they also issued a press release detailing progress towards Phase One of reform to the Reserve Bank Act.

Key Quotes

“The RBNZ’s shift to a dual mandate targeting both inflation and the labour market has been well signalled. But the devil was always going to be in the detail.”

“In the event, the details released today were very much in line with expectations – the RBNZ is not about to radically change its behaviour. If anything, today will be a “relief” for  markets that were slightly worried the RBNZ might go soft on inflation or lose sight of inflation targeting. Instead, this looks more like a formalisation of the RBNZ’s existing flexible inflation targeting approach, along with a few incremental changes. Therefore, we would regard this as a slightly “hawkish” development for markets, in the direction of lower long-term interest rates, higher short-term interest rates, and a flatter yield curve than the alternative. However, markets have so far declined to react at all.”