• Last week the RBNZ kept the OCR on hold, the outcome ourselves and a significant minority of forecasters anticipated.  Market pricing, too, had only a small probability of a cut built in.  However, the market reaction to the Monetary Policy Statement was marked, with swap rates soaring on the day.  The market response looks overdone relative to the message the RBNZ gave.
• The RBNZ is disappointed by the market reaction to the MPS.  Notwithstanding the on-hold decision, the tone of the June MPS was still on the dovish side.
• We think there is still a good chance RBNZ is going to have to cut again.  The NZD, coupled with higher long-term interest rates, will make for monetary conditions remaining much tighter than the RBNZ is happy with.

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