Analysis: RBNZ May Cut OCR Earlier Than Previously Signalled

By Sophia Rodrigues

The Reserve Bank of New Zealand left the official cash rate unchanged at 0.25% Wednesday but might have signalled the rate could be lowered earlier than previously signalled.

At the Monetary Policy Review, the RBNZ said it is prepared to ease monetary policy further using a range of unconventional tools as well as a reduction in the conventional policy rate. This language was similar to the last statement in May.

However, this time there was no additional mention of forward guidance which may be a hint that a cut could happen this year.


Two key points were missing in the minutes of the meeting.

There was no reference to forward guidance that the OCR would remain at 0.25% until 2021, and there was explicit mention of “negative OCR.”

In May, the minutes said, “the Committee reaffirmed its forward guidance that the OCR will remain at 0.25 percent until early 2021.”

It also said, “a negative Official Cash Rate (OCR) will become an option in future, although at present financial institutions are not yet operationally ready.”

On Wednesday ,the minutes said that the staff are working to ensure a broader range of monetary policy tools are in a deployable state in coming months. This included a term lending facility, reductions in the OCR, and foreign asset purchases as well as reassessing the appropriate quantum of the current Large Scale Asset Purchases.

There was no reaffirmation of forward guidance. The only mention of guidance was with reference to the OCR being left at 0.25% which the RBNZ said was in line with the “guidance issued on 16 March.”


One important inclusion in the latest OCR statement was the New Zealand dollar for the first time since March 16.

It indicates the exchange rate has once again become an important element in the monetary policy discussion. The RBNZ said the “appreciation of New Zealand’s exchange rate has placed further pressure on export earnings.”

Back in March it said the “New Zealand dollar exchange rate has (also) depreciated against our trading partners acting as a partial buffer for export earnings.”


On the economy, the RBNZ said the outlook had improved since the May Monetary Policy Statement because New Zealand had eased restrictions on activity sooner than assumed, and the government’s fiscal spending intentions were also larger than assumed in the forecasts.

But the positives could be short-lived because of the fragile nature of the global pandemic containment, the RBNZ said. The higher New Zealand dollar was an additional worry because it dampens the outlook for inflation and reduces export returns.

Importantly, there was no change in the view that risks to the economic outlook still remained skewed to the downside.