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Remy Wisenberg: Milford Asset Management expert on the market's reaction to the OCR going up by 25 basis points · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalk ZB. Follow this
• 0:13
  Speaker 1: and our wide range of podcasts now on iHeartRadio. Now,
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  Speaker 1: let's have a chat to Milford Asset Management's Remy Weisenberg.
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  Speaker 2: Hi, Remy.
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  Speaker 3: Hi, Heather.
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  Speaker 1: Okay, so what happened with the OCR was basically in
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  Speaker 1: line with what the market had expected. What about their
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  Speaker 1: updated track, though?
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  Speaker 3: Yeah, that's right. So going into the meeting, market basically
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  Speaker 3: expected today's hike. But looking forward, it was actually pricing
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  Speaker 3: in at least another 25 basis point increase by the
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  Speaker 3: end of this year. And it was also pricing in
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  Speaker 3: a peak cash rate of over 3.5%. So that would
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  Speaker 3: have implied another three hikes after today across the next
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  Speaker 3: 12 months or so. Now, that was above what the
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  Speaker 3: RBNZ's prior OCR forecast or their track that it published
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  Speaker 3: back in May. Today, we got that updated track. That
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  Speaker 3: was revised only very slightly and just slightly lower in
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  Speaker 3: the near term. and it maintained its forecast peak rate
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  Speaker 3: at 3.28%. So overall, that meant that the OCR track
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  Speaker 3: still remains lower than what the market had been pricing
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  Speaker 3: in going into the meeting today.
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  Speaker 2: And so then how did the market react to it?
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  Speaker 3: So because of the little change, it actually was a
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  Speaker 3: bit lower. That maybe took some in the market by surprise.
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  Speaker 3: We did see a bit of a recalibration of market
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  Speaker 3: interest rate views. We saw swap rates moving slightly lower
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  Speaker 3: on the day. We've also seen the market taking out
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  Speaker 3: some of the pricing for hikes this year. So it's
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  Speaker 3: no longer fully pricing in a full hike by the
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  Speaker 3: end of the year. And we've also seen a lowering
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  Speaker 3: of the peak forecast rate closer to 3.4%. Now, that's
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  Speaker 3: actually still higher than what the RBNZ's peak forecast rate is.
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  Speaker 3: That's 3.28% that I mentioned before. But it is obviously
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  Speaker 3: lower than what the market was previously expecting. We also
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  Speaker 3: had a bit of a weakening in the currency, so
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  Speaker 3: the New Zealand dollar versus the US dollar. That opened
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  Speaker 3: this morning around 59 US cents. That's fallen closer to
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  Speaker 3: 58 cents. And versus the Australian dollar, that opened this
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  Speaker 3: morning around 82.5 Australian cents. That's fallen to below 82 cents.
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  Speaker 2: So what do you think could change how the market
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  Speaker 2: thinks about the direction of the interest rates from here?
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  Speaker 3: Yeah, so markets, they're really dynamic. They're always continually reassessing
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  Speaker 3: and updating their pricing for interest rates in real time
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  Speaker 3: as more information becomes available. We've got inflation that is
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  Speaker 3: currently still above target. So how that tracks and trends,
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  Speaker 3: if it's in line with what's expected, that will be
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  Speaker 3: a key consideration. On the other hand, we've got the
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  Speaker 3: labour market. There's some soft spots there. So the market
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  Speaker 3: will be closely watching how that develops. Then we've got
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  Speaker 3: the election coming up. Various policies could start to come
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  Speaker 3: into play depending on the outcomes there. We've also had
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  Speaker 3: potential talk of a move back to a dual mandate
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  Speaker 3: for the Reserve Bank under a Labour government. Now, this
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  Speaker 3: is already the case in Australia and the US where
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  Speaker 3: maintaining stable employment must also be considered when setting monetary
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  Speaker 3: policy conditions, not just inflation, which is currently the case
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  Speaker 3: for the RBNZ. So a few moving parts. for the
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  Speaker 3: market to consider as we move forward.
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  Speaker 2: Yeah, good stuff, Remy. Always good to talk to you.
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  Speaker 2: Look after yourself. Remy Weisenberg, Milford Asset Management.