RBNZ cut the OCR to 2.5%, does not expect to cut the OCR further

The RBNZ does not expect to cut the OCR further, but stands ready to do so if the economic situation were to change. The RBNZ's press release included a key phrase that "We expect to achieve [2% inflation] at current interest rate settings, although the Bank will reduce rates if circumstances warrant." While this seems to indicate a willingness to cut the OCR further if required, actually the detail of the Monetary Policy Statement portrayed a central bank that is reluctant to cut: 

• The RBNZ emphasised the medium-term nature of the inflation target, and by reminding us of clause 4.B of the agreement, which states that the Bank must have regard for financial stability when setting monetary policy, and must seek to avoid unnecessary volatility.
  
  
• The MPS included four alternative scenarios, with a balance between the upside and the downside.
  
  
• The RBNZ discussion of inflation was pointedly focussed on core inflation, rather than the low headline rate. Core inflation is currently about 1.5%.
  
  
• The RBNZ's 90-day interest rate forecast was 2.6%, indicating little chance of a further cut.

• The RBNZ may not expect to cut the OCR, but they have said they stand ready to cut if circumstances change. The RBNZ will indeed be surprised on the downside by inflation, GDP growth, and house prices - and consequently, the OCR is likely fall to 2.0% next year. The RBNZ acknowledged early signs that the Auckland housing market is slowing, but suggested this could be temporary. 
  
  The RBNZ's house price inflation forecast for 2016 is 10.8%, which is regard as too high. The RBNZ's forecasts of GDP growth were upgraded materially - the RBNZ's forecast for March 2017 annual average GDP growth was 2.5%, but is now 2.9%. March 2018 has been upgraded from 3.1% to 3.4%. That said, the RBNZ's current stance does call into question the timing of any move below 2.5%.