RBNZ’s Hawkesby: Rates, not QE, main tool for the central bank

Interest rate cuts will now be the "go-to instrument" for the central bank should the economy require more monetary stimulus, the Reserve Bank of New Zealand (RBNZ) Assistant Governor Christian Hawkesby said in an MNI interview on Tuesday.

Additional quotes

“There had been no major change to the RBNZ's outlook, and that the economy continued to require monetary stimulus to achieve targets for inflation and employment.”

“But the Large-Scale Asset Purchases programme, which has acquired around NZD55 billion of securities so far, would not reach its limit of NZD100 billion by June 2022, though he declined to reveal any estimate of its potential maximum size.”

"We could do more harm than good to the functioning of the bond market if our LSAP program is too large relative to the size of the market."

"It is unlikely we would be able to reach NZD100 billion, but the LSAP still has an important role to play in continuing to keep long-term interest rates lower than otherwise."

Last year's "front-loaded" purchase rate in the order of NZ2 billion a week could not be sustained.”

"We are trying to calibrate it so it helps deliver monetary stimulus while finding the sweet spot without disrupting financial markets in a way which inhibits the transmission of monetary policy."

Market reaction

NZD/USD was last changing hands at 0.7257, down 0.14% on the day. The kiwi remains pressured amid rising Treasury yields.