The RBNZ left the stance of monetary policy unchanged.
Today’s OCR Review was almost exactly what we were expecting from the RBNZ.
The RBNZ left the overall stance of monetary unchanged, with the quantum of its Large -Scale Asset Purchase Prorgramme remaining at $60bn. The RBNZ acknowledged that the country has gone to Covid Alert Level 1 sooner than expected, and recent economic data has suggested that the economic fallout from Covid-19 may not be as severe as previously anticipated. But the RBNZ described this improvement as “fragile”, and said the risks are still to the downside. The RBNZ also pointed out that the exchange rate has risen, and this will suppress inflation and put pressure on export earnings.
Interestingly, the Summary Record of Meeting shows that despite the improved data, the RBNZ discussed expanding the LSAP but not decreasing it. In other words, the RBNZ is still looking at looser monetary policy, not tighter.
The RBNZ has basically kicked the can down the road. It said that it would outline the outlook for its LSAP and describe its readiness to deploy other monetary policy tools, such as a negative OCR, in the August Monetary Policy Statement.
Again, all of this was very much what we anticipated. More details to follow in our bulletin later today.
RBNZ statement:
Tēnā koutou katoa, welcome all.
The Monetary Policy Committee agreed to continue with the Large Scale Asset Purchase (LSAP) programme aimed at keeping interest rates low for the foreseeable future. The LSAP quantum remains set at $60 billion. The assets included are New Zealand Government Bonds, Local Government Funding Agency Bonds, and NZ Government Inflation-Indexed Bonds. The Committee is committed to reviewing this quantum at regular intervals, with a focus on achieving its remit. The Official Cash Rate (OCR) is being held at 0.25 percent in accordance with the guidance issued on 16 March.
New Zealand has contained the spread of COVID-19 locally for now, enabling a relaxation of social restrictions and an earlier resumption of domestic economic activity than assumed in our May Monetary Policy Statement. The Government’s intended fiscal stimulus, announced in its May Budget, was also slightly larger than we assumed. These outcomes give cause for some confidence but significant economic challenges remain.
The severe global economic disruption caused by the COVID-19 pandemic is persisting, leading to lower economic activity, employment, and inflation abroad and in New Zealand. The negative economic impact on New Zealand is exacerbated by the required international border restrictions, as the vast majority of the world battles to contain the pandemic. The appreciation of New Zealand’s exchange rate has placed further pressure on export earnings.
The main support for the economy in this environment is appropriately being provided through increased fiscal spending. However, monetary policy will continue to provide significant support.
As outlined in our May Statement, the balance of economic risks remains to the downside. The LSAP programme aims to continue to reduce the cost of borrowing. Retail interest rates have declined with lower wholesale borrowing costs. It remains in the best long-term interests of the banking sector to promptly maximise the effectiveness of our LSAP programme.
The Monetary Policy Committee is prepared to provide additional stimulus as necessary. As well as potentially expanding the LSAP programme, the Committee continues to prepare for the use of additional monetary policy tools as needed.
The Committee’s decisions are guided by the Reserve Bank’s mandate and its decision making principles on the use of alternative monetary policy instruments. We will outline the outlook for the LSAP programme and our readiness to deploy alternative monetary policy tools in our August Statement. We are committed to meeting our inflation and employment mandate.
Meitaki, thanks.
