RBNZ to cut 50 basis points in Thursday meeting

An OCR review along these lines would cause markets to price some risk of a 50bps OCR cut in September, and to price a risk of the OCR eventually falling below 2.5%. These market changes would manifest as a drop in the two-year swap rate on the day. 

Lower swap rates, combined with language aimed directly at the exchange rate, would also see the exchange rate fall on the day.

There is a clear risk that instead of waiting, the RBNZ will cut 50bps on Thursday. Valid arguments are seen in favour of either 25bps or 50bps, and there is little way of telling which way the Bank will leap on the day. On balance we opted to call only a 25 basis point reduction, but it was a close call. 

"Certainly, the risk of a 50 basis point reduction is greater than the 15% chance or so that markets are currently pricing", says Westpac.