RBNZ: Negative rates remains on the table – UOB

Economist at UOB Group Lee Sue Ann reviewed the latest interest rate decision by the RBNZ.

Key Quotes

“The September meeting culminated with the Reserve Bank of New Zealand (RBNZ) keeping its Overnight Cash Rate (OCR) unchanged at 0.25%, as expected, in accordance with the guidance issued on 16 March. It also agreed to continue with its Large Scale Asset Programme (LSAP) at NZD100bn.”

“The accompanying press release, however, outlined further measures that can be deployed if needed, including a Funding for Lending Programme (FLP), a negative OCR, and purchases of foreign assets. The Committee agreed that these instruments can be mutually supportive in bolstering economic activity.”

“We think it is looking more likely that the RBNZ will cut the OCR, but we will only be revising our forecasts following the November meeting. In terms of timeline, at this juncture, the RBNZ looks likely to cut the OCR by 50bps at the 14 April 2021 meeting, alongside a FLP, pausing thereafter. Moving in February or April should not really matter in terms of policy effectiveness, since the move will have been well-signaled in advance, which we believe the RBNZ will indicate (and commit to) latest by the 24 February meeting. Moreover, the RBNZ has pledged to keeping the OCR unchanged until March 2021, and has made no promises – or even forecasts – beyond that point. We take this forward guidance seriously.”