RBNZ Maintains Policy Settings; Expands QE Capacity By NZ$1.3 Billion

• Published on
• 14 Apr 2021, 02:01 PM

(This story was originally published at 12:45 PM but was revised at 1:45 PM, and is now being made freely available)

By Sophia Rodrigues

(Sydney, April 14, 2021) -- The Reserve Bank of New Zealand left its monetary policy settings unchanged and signalled there might be a slowing in the pace of government bond purchases, but it wouldn’t mean a change in its monetary policy stance.

The RBNZ also said it would reinvest proceeds of the maturity of the May 2021 government bond, thus giving itself capacity to purchase an additional NZ$1.3 billion of bonds. The RBNZ’s large scale asset purchases program is up to NZ$100 billion until June 2022.

At the Monetary Policy Review on Wednesday, the RBNZ said that reduced bond issuance was placing less upward pressure on government bond yields and “providing less scope” for LSAP purchases.

Any change in weekly purchases do not represent a change in monetary policy stance, the RBNZ said, adding, it will adjust weekly bond purchases as appropriate after taking into account market functioning.

The RBNZ currently holds NZ$4.4 billion of the May 2021 bond, according to CB-Intel’s estimate. However, only NZ$1.3 billion of these bonds purchased under the LSAP will be reinvested, RBNZ spokesperson confirmed to CB-Intel. The remaining NZ$3.1 billion were bought under the normal liquidity operations program for liquidity management purposes and they will just run off the balance sheet.

The RBNZ reiterated its forward guidance to maintain the current policy settings until it is confident that consumer price inflation will be sustained at the 2% target midpoint, and employment is at or above its maximum sustainable level.

The RBNZ also repeated that it was prepared to lower the OCR if required.

The RBNZ’s comments on the housing market were largely an echo of the past, though it noted that the extent of the dampening effect of the government’s new housing policies on house price growth and hence inflation and employment will take time to be observed.

Global economic outlook had improved but economic uncertainty remained elevated, the RBNZ said. Economic activity in the domestic economy had slowed over recent months but short-term data were highly variable, it added.

Overall, the RBNZ said the medium-term outlook for growth remained similar to the scenario presented in February and the outlook remains highly uncertain, and risks were broadly balanced as judged in February.

--Contact: Sophia@centralbankintel.com