RBNZ Maintains OCR Guidance But Expands Asset Purchases

By Sophia Rodrigues

The Reserve Bank of New Zealand left the official cash rate unchanged at 0.25% and said it is prepared to reduce it further but not before early 2021.

“The Committee reaffirmed its forward guidance that the OCR will remain at 0.25 percent until early 2021. It was noted that discussions with financial institutions about preparing for a negative OCR are ongoing,” the RBNZ said in a statement Thursday

To ensure retail interest rates and government’s borrowing costs fall further, the RBNZ expanded its Quantitative Easing program. The RBNZ raised the limit for Large Scale Asset Purchases to NZ$60 billion from the previous NZ$33 billion limit, and also included NZ government inflation-indexed bonds among the securities it would buy.

The RBNZ said it is pursuing a “least regrets” monetary policy approach that aims to deliver stimulus sooner, rather than later.

In the Monetary Policy Statement, the RBNZ discussed three scenarios, where the baseline scenario is the most optimistic one. The balance of risks around the baseline scenario are to the downside, the RBNZ said.

Outside the scenarios, the RBNZ said there is some chance that activity could be higher than expected if trans-Tasman travel could restart earlier than assumed.

The baseline scenario assumes New Zealand will be at alert level 2 for 10 months. Starting Thursday, New Zealand is making a move to alert level 2 on a staggered basis. This means the RBNZ is assuming trans-Tasman travel won’t restart until at least February next year.

--Contact: sophia@centralbankintel.com