RBNZ: Rates to remain low and door is open to QE – UOB

Lee Sue Ann, Economist at UOB Group, reviewed the recent decision by the RBNZ to cut the cash rate by 75bps to 0.25%.

Key Quotes

“In an emergency move early today (16 March), the Reserve Bank of New Zealand (RBNZ) slashed the Official Cash Rate (OCR) from 1.00% to 0.25%. In its accompanying press release, the RBNZ stated that the OCR will “remain at this level for at least the next 12 months”, adding that should further stimulus be required, it would “turn to quantitative easing (QE) for the first time in New Zealand history by undertaking large-scale purchases of government bonds”.

“The RBNZ has identified that it would rather inject money into the market by buying government bonds than to implement any further cuts to the cash rate from here, noting that at 0.25%, the OCR is currently the “lower limit, given the operational readiness of the financial system for very low or negative interest rates”. It will also focus on maintaining liquidity in the market, and encouraging the banks to keep lending, by delaying the start of new capital requirements for 12 months to July 2021.”

“The RBNZ’s comments about QE are the strongest yet about how it can still stimulate the economy when interest rates are at or nearly zero. Since the RBNZ has said it was not contemplating negative interest rates at this point, we foresee the OCR to remain at the current level of 0.25% for some time.”

“The RBNZ, whose policy committee met on Sunday (15 March), was also briefed by the Treasury Secretary on the government’s intended fiscal policy measures. PM Jacinda Ardern and Finance Minister Grant Robertson are expected to signal a fiscal package worth more than $12bn later today, with details due tomorrow.”