The RBNZ announced that it would conduct large-scale asset purchases of New Zealand Government bonds (‘quantitative easing’, or ‘QE’), following similar moves by global central banks last week.
Analysts at ANZ Bank explain
- The RBNZ will purchase $30bn of NZGBs with a range of maturities across the yield curve over the next 12 months, with purchases starting this week.
- This package is huge. Our analysis last week flagged the need for purchases of $15-20bn per annum, if not more, and this announcement is even larger with that. Our expectations were at the top end of market expectations, so we expect this package to have a significant impact.
- QE will help support the economy and soothe markets that have been dysfunctional. We believe this package will have an immediate and significant impact on the local bond market, especially with NZDM set to issue NZGBs at a $20bn annualised pace in Q2. There will be beneficial knock-ons across the credit spectrum.
- More QE, liquidity measures and market intervention may yet be needed. Of note, the RBNZ has said they will adjust the size and nature of the program as required. We also see a case for easing the counter-cyclical capital buffer to help facilitate the provision of credit.
- Next we expect another broad fiscal response; last week’s package was only the first tranche. The RBNZ’s move today paves the way for more government spending, by helping soak up the looming supply of bonds.
FX implications
The negative economic implications of the coronavirus outbreak have continued to intensify and a flight to cash and liquidity has pulled in a bid in the US dollar, weighing on NZD/USD. It is presumed that QE will cushion rather than stimulate and considering NZ's reliance on trade and tourism, the bird will likely remain on the backfoot.
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