NZGBs slip following RBNZ statement

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New Zealand government bonds lost ground after the Reserve Bank of New Zealand left its official cash rate unchanged at 5.50%, as unanimously expected, but left the door open for further tightening.

All 28 economists polled by Reuters had predicted today's pause, the RBNZ's fourth unchanged outcome in a row, which followed 12 successive OCR increases by the Monetary Policy Committee from a record low 0.25% between October 2021 and May 2023.

The accompanying statement noted: "The OCR will need to stay restrictive, so demand growth remains subdued, and inflation returns to the 1%–3% target range" and "If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further".

Today's meeting follows a softer-than-anticipated Q3 2023 inflation report. This showed New Zealand consumer price inflation slowing from Q2's 6.0% to 5.6%, less than the expected 5.9% outturn and further below the three-decade high 7.3% inflation rate seen in Q2 2022.

Two-year and five-year NZGB yields are up 4bp and 2bp today at 5.03% and 4.88%, while 10-year yields are unchanged at 5.21%.