RBNZ: Market disappointment was always on the cards - TDS

Research Team at TDS, notes that the RBNZ cut the Official Cash Rate (OCR) by -25bp to 2% and left a clear explicit easing bias on the table “… further policy easing will be required …” 

Key Quotes

“This combination was widely expected and a month ago the combination may have satisfied analysts and the markets.  However, as the markets were increasingly ‘overpriced’ for this scenario (Aug OIS was 115% priced for -25bp) the market reaction was consistent with a “hawkish cut” which it certainly isn’t, and we see the initial market reaction as harsh and recommend fading the moves. 

Cash rates will be lower for longer, flattening the curve and keeping the NZD under pressure. Today’s price action is the correction needed after such “over-anticipation”, and market disappointment was always on the cards.”