Next move in RBNZ's OCR likely to be up

The RBNZ is still uncomfortable with the strength of the exchange rate - while the NZ dollar has fallen quite a bit against the US dollar, it remains at a very high level in tradeweighted terms. 

If anything, the language in last week's statement escalated those concerns: the January statement noted that a further significant depreciation was "expected", while the March statement said that it was "needed" in order torebalance New Zealand's external accounts.

On that note, the RBNZ is unlikely to have been pleased by the jump in the NZ dollar after the release of the MPS. While the RBNZ appears to have crafted its statement for the purpose of dissuading the market from pricing in OCR hikes, it may have underestimated the strength of feeling among traders thatthe next move will be a cut. 

That view seems to have been expressed more through the exchange rate, whereas interest rates were little changed after the statement. There was no direct mention of macroprudential policy, or the recent consultation on increased bank capital requirements for investor property loans. That's not surprising, as the RBNZ tends to avoid conflating these issues with monetary policy.

Indeed, there was no mention at all of housing as a complication for monetary policy, though the RBNZ has recognised the market's recent resurgence and expects house price inflation to accelerate to 7.4% this year.

Westpac notes its observations as follows:

• Our view remains that the next move in the OCR will be up.
  
  
• However, as we've said before, any further interest rate hikes are such a distant prospect at the moment that debating the timing is something of a red herring. 
  The overarching issue is that persistently low inflation, despite a strong domestic economy, has muddied the waters for monetary policy. 
  
  
• Until we get some clarity on the medium-term outlook for inflation, weagree with the RBNZ that there's no case for moving the OCR one way or another.