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Economist at UOB Group Lee Sue Ann assesses the recent interest rate decision by the RBNZ.

Key Quotes

“The first meeting of the year culminated with the Reserve Bank of New Zealand (RBNZ) maintaining the current stimulatory level of monetary settings in order to meet its consumer price inflation and employment remit. The Committee kept the Official Cash Rate (OCR) at 0.25%, and the Large Scale Asset Purchase (LSAP) Programme of up to NZD100bn and the Funding for Lending Programme (FLP) operation unchanged.”

“However, the outlook still remains uncertain, determined in large part by any future health-related social restrictions. This ongoing uncertainty is expected to constrain business investment and household spending growth. Inflation and employment are still away from target and need to be on track, sustainably. Besides, conditions in the labour market are likely to get worse before they get better.”                                                          

“We previously highlighted that whilst the introduction of the FLP is seen as a key step towards the RBNZ cutting the OCR into negative territory; we think the odds of a negative OCR have reduced significantly. Our call remains for the OCR to be unchanged at 0.25%. For now, the RBNZ will not want to explicitly signal an OCR move for quite some time. As for the LSAP programme, we see the time-frame being extended to the end of 2022.”

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