Interest Rate Strategy

Outlook for Borrowers - Post May MPS

Jason Wong -
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- Wholesale floating rates should remain little changed alongside a flat OCR through 2017; upside risk prevails through 2018 as an expected tightening cycle gets underway.
- Short-dated wholesale fixed rates should range-trade over the next couple of months, before facing gradual upside pressure in the second half as we move closer to a tightening cycle that is expected to begin in 1H18.
- Borrowers should be looking for dips in 3-5 year wholesale fixed rates to hedge exposure; we see upside pressure to mid-curve rates later in the year, largely reflecting global forces.
- Dips in long-end wholesale fixed rates should be actively considered as hedging opportunities, with risks skewed toward higher rates.

In the 11 May Monetary Policy Statement (MPS), the RBNZ reiterated its view that “monetary policy will remain accommodative for a considerable period”. The Bank saw the recent increase in inflation as transitory and believes that an unchanged OCR of 1.75% through to late 2019 will be required to generate headline inflation of 2% over the medium term.