RBNZ Keeps OCR Unch; To Start Funding for Lending Programme in Dec

--Slightly upgrades view on economy but alert to downside risks

By Sophia Rodrigues

The Reserve Bank of New Zealand left the official cash rate unchanged at 0.25% and announced it will provide additional easing to the economy via a Funding for Lending programme to guard the economy from a prolonged economic downturn.

The RBNZ is providing more stimulus despite a slightly improved outlook for the economy under its baseline scenario, compared with three months ago.

But there was still the risk that unpredictable events could push inflation and employment significantly lower than in the baseline scenario. If this risk materialized, inflation expectations would fall further or remain low for a prolonged period, the RBNZ said.

“Members agreed that, under current circumstances, the appropriate stance to achieve its remit objectives would be to provide further monetary stimulus,” the RBNZ said.

“The Committee agreed that, given the current inflation and employment conditions, and the ongoing significant uncertainty with regard to the outlook, there was less regret associated with the risk of temporarily overshooting their policy remit.”

Any risk to the financial system would be dealt via change in prudential policy settings, the RBNZ said. Indeed, the RBNZ has already embarked on this path, issuing a statement earlier Wednesday about its plan to reinstate restriction on high loan-to-value mortgages.

The RBNZ said the banking system is on track to be operationally ready for negative interest rates by year end and that it was prepared to lower the OCR to provide additional stimulus if required. It also reiterated that lower or negative OCR, purchases of foreign assets and interest rate swaps are instruments that remain under consideration.

The RBNZ also maintained its guidance that monetary policy will need to remain stimulatory for a long time to meet the consumer price inflation and employment remit.


Under the FLP programme, the RBNZ will provide funding to banks for a term of three years at floating rate which would be the same as the prevailing OCR.

Initial allocation would be 4% of total loans and advances, with additional allocation to be 2%.  Based on current lending, initial allocation is likely to be around NZ$20 billion.

Additional allocation would be based on the amount of lending with 50 cents to be allocated for every NZ$1 of new eligible loans. The RBNZ said it is

The initial allocation will be available for 18 months, and additional allocation for a further six months after that.

--Contact: Sophia@centralbankintel.com