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Expected OCR cut final act in easing cycle

NZ NewswireNZ Newswire 3/11/2016 Jonathan Underhill

The Reserve Bank is expected to cut the official cash rate to a record low 1.75 per cent next week in what's seen as the final act in an easing cycle that's proved ineffectual in the face of extraordinarily weak global inflation.

The odds of governor Graeme Wheeler cutting the OCR a quarter-point to a record low on Nov. 10 is about 60 per cent, based on the overnight interest swap curve.

Investors will be looking at the projections in next week's monetary policy statement for confirmation the easing cycle is at an end.

Unfortunately, the outcome of next week's anticipated rate cut is more uncertain than usual, since it will come hard on the heels of the US presidential election and could well be overshadowed in financial markets.

Since the last MPS, the kiwi dollar has gained on a trade-weighted basis, to reach a two-month high of 78.60 today, or 3.6 per cent above the average level the bank projected for the fourth quarter.

Next week's MPS will market the first where the RBNZ gives a projection for the OCR rather than the 90-day bank bill, which hasn't been closely enough correlated with the benchmark rate to make it an accurate signaller for the central bank.

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