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New Zealand Monetary Policy November 2020

New Zealand: RBNZ holds rates, boosts monetary stimulus in November

At its meeting on 11 November, the Reserve Bank of New Zealand (RBNZ) decided to leave the official cash rate (OCR) unchanged at its historic-low level of 0.25%, and at the same time ramped up its monetary stimulus program. Moreover, it reaffirmed the possibility of bringing the policy rate down to negative territory, among other measures, in order to lower borrowing costs and sustain the recovery.

The RBNZ agreed to provide additional stimulus through its Funding for Lending Programme, commencing in December, aimed at reducing banks’ funding costs and interest rates. Moreover, it will stick to its Large Scale Asset Purchase Programme of up to NZD 100 billion by June 2022, to keep retail rates at low levels. On top of that, the Bank reaffirmed that additional monetary stimulus may be needed in the form of additional low-cost funding to banks, foreign asset purchases and interest rate swaps, as the country tries to get back on its feet following the severe blow dealt by the pandemic. Risks to the outlook remain tilted to the downside, due to the unpredictable evolution of the virus both domestically and globally, although recent news on vaccine developments could deliver upside surprises.

The Bank also stated that the banking system is on track to be operationally ready for negative interest rates by the end of this year—an action the RBNZ will take if needed to bring a larger amount of credit to the economy at a greater speed.

The next monetary policy meeting is scheduled for 24 February 2021.

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