Lee Sue Ann, Economist at UOB Group, assessed the latest RBNZ meeting.
Key Quotes
“The November meeting culminated with the Reserve Bank of New Zealand (RBNZ) keeping its Overnight Cash Rate (OCR) unchanged at 0.25%, as expected, in accordance with the guidance issued on 16 March. It also agreed to continue with its Large Scale Asset Programme (LSAP) up to NZD100bn.”
“However, the Monetary Policy Committee (MPC) agreed that additional stimulus would be required in order to meet its consumer price inflation and employment remit. This will be provided through a Funding for Lending Programme (FLP), commencing in December. The FLP will reduce banks’ funding costs and lower interest rates.”
“The RBNZ has also decided to further delay the start of increases in bank capital until 2022 to allow banks continued headroom to respond to the effects of the COVID-19 pandemic and to support the economic recovery. This delay supports other actions the Reserve Bank has taken to cushion the initial economic blow of COVID-19 by promoting cash flow and confidence in the financial system.”
“As reiterated in today’s November Monetary Policy Statement, the RBNZ has been exploring a range of alternative monetary policy tools to help deliver additional stimulus. This includes a negative OCR, further LSAPs, purchases of foreign assets, and a FLP. After assessing the tools against the principles for alternative monetary policy, the MPC judged that the FLP would be the most effective additional tool to provide stimulus in the current environment.”
“Whilst the introduction of the FLP is seen as a key step towards the RBNZ cutting the OCR into negative territory next year; in our view, the odds of a negative OCR have reduced given how the RBNZ has sounded less dovish and made an upbeat assessment of the economy today. Even if a negative OCR were to be implemented, it is likely to be implemented later or more gradually. Our call remains for the OCR to remain at 0.25% for now.”
Share
