RBNZ Boosts QE, Opens Door To Negative Rates

London, 13 May 2020 (LS NEWS) - The Reserve Bank of New Zealand expanded its policy response to the Covid-19 pandemic and left the door open to additional easing steps including negative rates, at its meeting today.


The bank increased the limit on asset purchases to NZD 60 bln from NZD 33 bln and will now include inflation-indexed bonds alongside government bonds and local government funding agency bonds.


The benchmark official cash rate (OCR) was unchanged at a record low of 0.25 pct and the bank signalled no imminent changes.


“The current goal of monetary policy tools is to reduce borrowing rates for New Zealanders, and further OCR reductions at this stage would not be effective in achieving that. Consequently, the Committee reaffirmed its forward guidance that the OCR will remain at 0.25 percent until early 2021”, the minutes said.


However, further measures were not ruled out to support the economy during what PM Ardern had earlier described as a “very tough winter”.


“The Monetary Policy Committee is prepared to use additional monetary policy tools if and when needed, including reducing the OCR further, adding other types of assets to the LSAP programme, and providing fixed term loans to banks”.


Negative rates


The committee did note that lowering the OCR below zero will become an option in the future but financial institutions were not operationally ready for such a move.


Deputy Governor Bascand indicated in the press conference that they had asked banks to be ready for negative rates by the end of the year. 


ANZ Chief Economist Sharon Zollner said, “Risks are skewed towards QE being expanded in time, and we would not rule out OCR cuts into negative territory next year, though that would be a risky move, in our view”.



-- Conor Cooper