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New Zealand Monetary Policy August 2020

New Zealand: RBNZ stays put in August but expands QE program and considers negative rates

At its meeting on 12 August, the Reserve Bank of New Zealand (RBNZ) decided to leave the Official Cash Rate (OCR) unchanged at its historic-low level of 0.25%, in line with market expectations. Surprisingly, however, it significantly expanded its asset purchasing program and raised the possibility of bringing the policy rate down to negative territory, among other measures, in order to keep borrowing costs low and further cushion the economy from the Covid-19 fallout.

The RBNZ ramped up its Large Scale Asset Purchase program (LSAP) from NZD 60 billion to as much as NZD 100 billion to put further downward pressure on retail rates. Moreover, it announced that further monetary stimulus may be needed in the form of negative rates, low-cost funding to banks and/or foreign asset purchases as the country grapples with the severe blow dealt by the pandemic. Uncertainty has also increased amid the recent resurgence of new Covid-19 cases after the country had achieved more than 100 days virus-free, weighing on household and business expenditure in the process and thus keeping risks to the economic outlook firmly tilted to the downside.

The Bank’s announcement that it would consider further stimulus, stressing that it would deploy additional measures if needed, illustrated its dovish stance for policy ahead.

The next monetary policy meeting is scheduled for 23 September.

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