NZIER’s Shadow Board favours further QE over negative OCR

Ahead of the Reserve Bank of New Zealand this week, the Shadow Board of the RBNZ has stated that the significant changes in monetary policy implementation in recent weeks in response to the effects of the COVID-19 outbreak has led it to revamp the format of its Shadow Board reporting.

Key notes

The Reserve Bank of New Zealand (RBNZ) on 16 March 2020 announced it was undertaking an emergency 75 basis points cut in the OCR to take it to 0.25%. The central bank indicated in its accompanying statement it expected the OCR to remain at 0.25% “for at least the next 12 months”.

The RBNZ subsequently introduced other monetary policy measures to support economic activity, including the introduction of Quantitative Easing (QE) through its $30 billion Large Scale Asset Purchases (LSAP) and $3 billion Local Government Funding Agency (LGFA) programmes. By buying these government bonds on the secondary market, it can influence longer-term interest rates lower, thus helping to encourage spending and investment.

In the wake of the announcement of these substantial stimulus measures, there has been increasing speculation that the RBNZ will further reduce the OCR to take it to negative territory. There is also an increased probability of growth in the government’s QE programme in order to provide even more stimulus to the New Zealand to mitigate the effects of the COVID-19 outbreak. To reflect these fast-evolving times, we have overhauled the format of our Shadow Board reporting.

RBNZ preview

• RBNZ MPS Preview: Expected to keep rates unchanged at 0.25%