The Third Scenario: the end of Goldilocks
While the RBNZ expects to keep the OCR on hold through 2019 and into 2020, in their past two Monetary Policy Statements they have outlined two alternative scenarios: one with stronger inflation pressures; and another with softer economic growth. In our view, the market is currently underestimating the chances of a third scenario, which is a combination of both stronger inflation pressures and softer economic growth.
One of the few certainties when putting together economic or market forecasts is that your central projection is unlikely to be exactly right. This is what motivates a focus on alternative scenarios, to gain a better appreciation of the range of possible outcomes and the balance of risks …