RBNZ seen on hold and increasing QE this year – UOB

Economist at UOB Group Lee Sue Ann assesses the latest RBNZ event, where it left the OCR unchanged at 0.25%.

Key Quotes

“At its April meeting, the Reserve Bank of New Zealand (RBNZ) decided to maintain the current stimulatory level of monetary settings – the Official Cash Rate (OCR) at 0.25%, and the Large Scale Asset Purchase (LSAP) and Funding for Lending (FLP) programmes unchanged.”

“The accompanying media release was relatively short, with the RBNZ stating that it agreed to maintain its current stimulatory monetary settings until it is confident that consumer price inflation will be sustained at the 2% per annum target midpoint, and that employment is at or above its maximum sustainable level. Meeting these requirements will necessitate considerable time and patience. The Committee also agreed that it was prepared to lower the OCR if required.”

“As for monetary policy, we think that policymakers at the RBNZ need to be ready to come out swinging if underlying momentum threatens to turn. For now, we think that negative interest rates are a risk but an increasingly low one. Our call remains for the OCR to be unchanged at 0.25%. More likely, further quantitative easing will be implemented. We see the RBNZ boosting the Funding for Lending program and its asset purchases. It is also likely to get tougher on the macro-prudential front given the hot property market and concerns around high-risk lending.”