While most of the market expected no change today, many had expected that to come with an enhanced easing bias which was not for forthcoming either. The Bank stuck to the line that further easing may be required, the same as the March statement.
In its statement the Bank acknowledged indications that house price inflation may be picking up and signalled their expectation that inflation will strengthen as the effects of low oil prices drop out and and as capacity pressures gradually build. It was for these reasons we thought the Bank wouldn't cut in March and when they did, that the next easing would probably come sooner rather than later.
The overall positive tone to much of the Statement suggests we are likely at the bottom of the easing cycle. We concur with the Bank that inflation heads higher from here and we expect the housing market to remain tight and problematic.
The one qualification to that remains the exchange rate. While its wasn't enough for them to move today, we think that remains the most likely factor that could yet force the Bank's hand.
In that respect the Bank knows it's the against the Australian dollar where they can probably have most influence. The interesting development on that front was yesterday's lower than expected CPI out turn in Australia which has our team in Sydney expecting the Reserve Bank of Australia to cut interest rates next week, so keep an eye on the NZD/AUD cross.