Let's take a step back from the carnage seen early today from the RBNZ leaving it's OCR projections unchanged. For our RBNZ review, click here.
Looking past today's violent slump in the Kiwi and NZ 2yr swaps, the question is whether the market has over-reacted.
Even more pointedly, the question needs to be asked of whether the RBNZ is correct in being so downbeat about inflationary pressures ahead.
Gov Wheeler said earlier that for an OCR hike, inflationary expectations would need to rise.
In the cold light of day, we doubt the market will significantly drive down odds of a hike in Q1/Q2 2018, with most still forecasting tightening from May 2018.
If upcoming data were to prove the RBNZ wrong, there is significantly more room now for the market to drive up NZ's 2yr swap rate and the NZD. JH
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