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Lee Sue Ann, Economist at UOB Group, assessed the latest RBNZ meeting and prospects of monetary policy in the next months.

Key Quotes

“At its latest monetary policy, the Reserve Bank of New Zealand (RBNZ) decided to keep the Official Cash Rate (OCR) at 0.25% and to continue with the Large Scale Asset Purchase (LSAP) programme aimed at keeping interest rates low for the foreseeable future. The LSAP quantum remains set at NZD60bn.”

“In the accompanying press release, the RBNZ stated that “the Monetary Policy Committee is prepared to provide additional stimulus as necessary. As well as potentially expanding the LSAP programme, the Committee continues to prepare for the use of additional monetary policy tools as needed.”

“Markets are not pricing in much easing in the OCR for the rest of 2020, but it is still pricing roughly 75% odds of a cut by May 2021, largely driven by the RBNZ openly talking about the prospect of negative interest rates. We cannot rule out the possibility of negative interest rates in time, but that will come with considerable baggage and we do not expect the RBNZ to employ that option at this juncture.”

“For now, we think the RBNZ will continue to use volume announcements (eg. the programme is currently NZD60bn in size) as it fine-tunes its policy stance. We expect QE to be expanded to a cap of NZD90bn by August. Another option for the RBNZ is to adjust the QE programme to a type of “yield curve control” (or YCC), as used in Australia.”