RBNZ is likely to set the stage for rate cuts, likely to move in September

The Reserve Bank of New Zealand (RBNZ) is expected to leave the policy cash rate unchanged at 3.50% at its monetary policy meeting on 11 June. It is likely to be a close call since the June, July and September meetings all provide good opportunities for the RBNZ to ease: the July meeting follows the Q2 inflation release while the June and September meetings are followed by press conferences by Governor Wheeler.
 
A rate cut is expected in September. The last three rate hike/cut cycles began at a meeting that was followed by a press conference. Markets are currently pricing in a 46% probability of a rate cut in June and a 70% likelihood of at least one rate cut by July. 

The benign inflation outlook provides the RBNZ with plenty of scope to ease rates; Q1 was the second quarter of deflation while the two-year-inflation expectations dropped to 1.85% from 3.0% in 2011. 

However, rising house prices in Auckland are a concern. The RBNZ has announced tightening of its macroprudential measures in Auckland, to be implemented in October. 

The governor will wait until closer to the implementation of the revised measures before further rate cuts. He is likely to use the June press conference to set the stage for such cuts.