RBNZ Preview: Five major banks expectations

The Reserve Bank of New Zealand (RBNZ) will announce its monetary policy decision on 24 June at 02:00 GMT. The market consensus is for the RBNZ to stay on hold and as we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks regarding the upcoming central bank's meeting.

Standard Chartered

“We do not expect major policy changes, as the RBNZ frontloaded its QE announcements in May, substantially expanding the Large Scale Asset Purchase (LSAP) programme, leaving little room for further near-term increases. We see room for the RBNZ to expand QE by another NZD 11 billion (including the NZD 4 billion increase in the 2019/2020 bond issuance programme) until it hits the indemnity cap on NZGBs. That said, the RBNZ will likely reiterate its dovish tone and willingness to use all policy tools (including negative rates). We would watch for the RBNZ’s assessment of banks’ preparedness to cope with negative interest rates and a change in its view on the COVID-19 impact from a shorter-term shock to a lasting contraction. We would also watch for its comments on the NZD, which has appreciated since the May meeting.” 


“We expect the RBNZ to keep its monetary policy stance unchanged. We expect that the weekly pace of bond-buying under the LSAP will stay slightly above $1 billion for the foreseeable future. The RBNZ will have to lift the $60 billion cap on the LSAP at some point, just to allow headroom for that pace of bond buying to continue. There is a chance that the cap will rise to $70 billion next week. But more likely, the RBNZ will leave the cap unchanged this time, and lift it to $80 billion in August in a single hit. The RBNZ is likely to reiterate that it has other monetary tools available, but will not signal that these are necessary at this point.”


“We expect the RBNZ to leave the OCR unchanged at 0.25%. The RBNZ will acknowledge the positive surprise that NZ exited Level 2 lockdown much faster than they had assumed, but will be at pains to point out that beyond that, the outlook remains extremely challenging.   We expect the RBNZ will emphasise that they stand ready to act further if required, mirroring the Fed’s tone. We expect the RBNZ LSAP program to be further expanded to a cap of $90 billion by August, but there is no need to act now.  The RBNZ would likely prefer the currency to be lower. But with New Zealand a relative ‘good news story’ and risk appetite still elevated, any jaw-boning is unlikely to have a lasting impact.”


“New Zealand’s strong relative position and favourable outlook from 3Q20 onwards suggest that the RBNZ will not need to deliver any meaningful changes to its policy stance. But given the volatility of the kiwi in recent weeks, Governor Orr may wish to convey the impression at that meeting that all options remain open to the RBNZ, in order to keep the NZD from appreciating too much (even if the reality is that there is little need for further incremental easing through expanded LSAP or adoption of alternative policies such as negative interest rates). If indeed the RBNZ adjusts its rethoric with the aim of putting a lid on the NZD, we see the balance of risks for the currency as tilted to the downside in the aftermath of the meeting. Stepping away from the short-term impact, there is a significant risk that the threat of negative rates may not be enough to keep NZD appreciation contained. As we do not expect any more rate cut to be ultimately delivered, we cannot exclude the possibility that the RBNZ will attempt to step in against the NZD with other - and possibly more direct - measures.”  


“Expect the RBNZ to keep the cash rate on hold at 0.25%. The Bank is likely to acknowledge a quicker than expected unwind of restrictions but highlight global risks remain. As such it's likely to reaffirm it's prepared to use additional monetary policy tools if and when needed. There may be some scope to talk down NZD strength. Meanwhile, we don't expect an LSAP increase.”


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