New Zealand raises rate 2nd time, sees more hikes

      New Zealand's central bank raised it key interest rate for the second month in a row and said it would likely need to continue to raise the rate to above the neutral rate as the near-term risks to inflation were skewed to the upside and this carries the risk that higher inflation becomes embedded.
     The Reserve Bank of New Zealand (RBNZ) raised its official cash rate (OCR) by another 25 basis points to 0.75 percent and has now raised the rate by a total of 50 points following the earlier rate hike in October, which was the first rate hike since July 2014.
     Although New Zealand's economy contracted sharply during the nationwide lockdown in August to limit the spread of the COVID-19 virus, the central bank said the country's economy was in a strong position, supported by resilient household spending, strong construction activity, fiscal policy and demand for the important dairy and meat products.
       Public health restrictions will ease as New Zealand transitions into a new phase to control the spread of the Delta variant - the COVID-19 Protection Framework - but this will still result in a economic slowdown in the second half of this year as household spending and business investment is dampened.
    "With the easing of restrictions, it is anticipated that the COVID-19 virus will become more widespread geographically, albeit manageable for health authorities and less harmful for those vaccinated," the bank said.
     Despite the lockdowns, capacity pressures in New Zealand's economy have continued to tighten, RBNZ said, as employment is now considered to be above its maximum sustainable level and this is reflected in stronger wage growth, boosting domestic inflation.
      At the same time, continued bottlenecks globally and locally and higher oil prices have added to inflationary pressures and RBNZ expects headline inflation to exceed 5 percent in the near term before returning to the 2 percent midpoint of the bank's target range of 1.0 to 3.0 percent over two years.
     New Zealand's inflation rate jumped to 4.9 percent in the third quarter of this year from 3.3 percent in the previous quarter while the economy grew 17.4 percent year-on-year in the second quarter - the fastest pace of growth since records began in 1988 - from 2.9 percent in the first quarter.

     In addition to a 75-basis point rate cut in March last year at the onset of the pandemic, RBNZ also stimulated economic activity by other means, such as asset purchases.

     Initially RBNZ began buying up to NZ$30 billion of government bonds but then also bought local agency bonds and by August 2020 the target under the Large Scale Asset Purchase (LSAP) program was then raised to $100 billion.

      With the economy recovering, the central bank in July decided to conclude its asset purchase program, prior to the October rate hike, and the bank's monetary policy committee today the impact of LSAP on monetary stimulus had declined though the current amount of bond holdings are still providing "a small amount of ongoing stimulus."

     "The Committee expects to gradually manage LSAP bond holdings down, in a way that maintains the smooth functioning of financial markets," RBNZ said, adding it would provide further details on how bond holdings will be reduced early next year.

     Commercial banks also still have access to medium-term funding under RBNZ's Funding for Lending Program (FLP) until the end of 2022 and the monetary policy committee said it had agreed that changing the terms of this program would not be consistent with its risk appetite.

     "As the OCR is increased, the cost to banks of borrowing through FLP will rise, helping to remove monetary stimulus," RBNZ said.

     During its meeting, the monetary policy committee discussed how fast interest rates need to be raised over the next 12 to 18 months to meet its goals.

     "The Committee expected that the OCR would need to be progressively increased and, conditional on the economy evolving as expected, the OCR would likely need to be raised above its neutral rate," the bank said.

     One factor favoring a more rapid removal of monetary stimulus was the current level of inflation and capacity pressures, and the risk that higher near-term inflation becomes embedded in price setting behavior.

     On the other end, there is uncertainty over the resilience of consumer spending and business investment as the country adapts to life with COVID-19 in the community, while monetary conditions are already beginning to tighten and high levels of household debt could increase sensitivity to higher interest rates.

     "Weighing these factors, the Committee assessed risks to their price stability and maximum sustainable employment objectives as being broadly balanced over the medium term," RBNZ said.

New Zealand raises rate and sees further tightening

     New Zealand's central bank raised its main interest rate for the first time in a little over 7 years, as widely expected, and said it expected to continue to tighten its monetary policy stance "over time, with future moves contingent on the medium-term outlook for inflation and employment."
     The Reserve Bank of New Zealand (RBNZ) raised its official cash rate (OCR) by 25 basis points to 0.50 percent, the first rate hike since July 2014.

     RBNZ had already been expected to raise its rate in August but held off due to the imposition that day of a countrywide lockdown to curb the spread of COVID-19.

      The bank, however, also said then it would continue to reduce the level of monetary stimulus over time.

     Since June 2015 RBNZ has steadily lowered the OCR by a total of 3.25 percentage points until today, including a 75-basis-point cut last year.

      New Zealand 's inflation rate jumped to 3.3 percent in the second quarter of this year from 1.5 percent in the first quarter, above the bank's inflation target of 2.0 percent, plus/minus 1 point.

     The central bank said it expects inflation to rise above 4 percent in the near term before returning toward its target in the medium term.

N. Zealand surprises with steady rate, lockdown starts

      New Zealand's central bank unexpectedly left its policy interest rate steady due the heightened uncertainty from the imposition of a countrywide lockdown to curb the spread of COVID-19, but said it would continue to assess inflation and employment "with a view to continue to reduce the level of monetary stimulus over time so as to best meet their policy remit."
      The Reserve Bank of New Zealand's (RBNZ) monetary policy committee left its Official Cash Rate at 0.25 percent, unchanged since March last year.

      The central bank's decision immediately hit the exchange rate of the New Zealand dollar, known as the kiwi, which fell 0.5 percent to 1.449 to the U.S. dollar from earlier today and is now 4.3 percent down since the start of this year.

      The kiwi had already come under pressure following the government's decision to impose the new 3-day lockdown today but is likely to surprise most investors who had expected the RBNZ to become the first advanced economy central bank to raise rates to curb inflation.

       Despite today's decision to maintain the rate, RBNZ still looks to be on track to continue tightening its policy stance, sharply pulling forward its forecast for a rate hike to December this year from the May forecast of September 2022.

      In an update to its monetary policy statement, RBNZ projects a series of rate hikes starting later this year, with OCR seen averaging 0.6 percent in December this year, rising to 0.9 percent in March 2022, 1.2 percent in June 2022, 1.4 percent in September and 1.6 percent in December 2022.

       In March 2023 RBNZ sees OCR averaging 1.8 percent, then 1.9 percent in June 2023. 2.0 percent in September 2023 and 2.1 percent in March 2024.

      New Zealand's inflation rate jumped to 3.3 percent in the second quarter of this year, up from 1.4 and 1.5 percent in the previous four quarters, for the biggest increase in nearly 10 years, mainly due to a rise in the cost of new housing, petrol and rent.

      The RBNZ already began reducing its monetary stimulus last month by halting further asset purchases as of July 23 and since this decision on July 13, data has not only revealed the jump in second quarter inflation but also a decline in unemployment to 4.0 percent from 4.6 percent, the lowest since December 2019, and continued acceleration in wage growth.

      The latest lockdown came after the discovery of a the first community case of COVID-19 since February, illustrating Prime Minister Jacinda Ardern's decisive strategy of "go hard, go early" for tackling the virus, a strategy that has paid dividends as this has allowed New Zealand to return to pre-pandemic normalcy despite the absence of tourists.

      RBNZ acknowledged the country has recovered faster than most other countries from the pandemic, with employment at or above its maximum sustainable level while persistent health risks promote global supply chain disruptions and prolong inflationary pressures.

    "However, the need to reinstate COVID-19 containment measures in some regions highlights the serious health and economic risks posed by the virus," RBNZ said, adding this is a "stark example of how unpredictable and disruptive the virus is proving to be."

      The central bank also acknowledged capacity pressures in the economy, particularly the labor market, along with house prices that are above their sustainable level, and expects consumer price inflation to exceed its target range before returning to the midpoint around the middle of next year.

     "The Committee agreed they are confident of meeting their inflation and employment remits with less need for the existing level of monetary stimulus," the bank said, adding it was alert to the impact the virus could have on confidence.

      Consumer price inflation is forecast to rise to an annual average of 4.1 percent in September and December this year before easing to 3.7 percent in March next year, 2.9 percent in June 2022 and then stabilize at 2.2 percent in following quarters before declining to 2.1 percent in September 2023 and then 2.0 percent in June 2024.

      Last year the RBNZ cut its policy rate by 75 basis points to the current level and embarked on asset purchases to keep interest rates low and support economic activity.

     Initially the central bank began buying up to NZ$30 billion of government bonds and then raised this in the following months to $100 billion.

New Zealand holds rate but ends asset purchases

     New Zealand's central bank left its key interest rate steady but will reduce its level of monetary stimulus by the end of next week by stopping further asset purchases to ensure it meets its inflation and employment targets.

     The Reserve Bank of New Zealand (RBNZ) kept its Official Cash Rate (OCR) as 0.25 percent, unchanged since March last year, but said it would "halt additional asset purchases under the Large Scale Asset Purchase (LSAP) program by 23 July 2021."
     "The Monetary Policy Committee agreed to reduce the current stimulatory level of monetary settings in order to meet its consumer price and employment objectives over the medium term," the central bank said, adding the major downside risks of deflation and high unemployment have receded.
     In addition to cutting key policy rate in March last year by 75 basis points to the current level, RBNZ also embarked on asset purchases later that month to keep interest rates low and boost the economy that was hit hard by the measures to contain the COVID-19 pandemic.
     At first RBNZ began buying up to NZ$30 billion of government bonds - known as quantitative easing - and then increased this amount in the following months until August last year when the target was raised to $100 billion. 
      In November the central bank then launched a Funding for Lending Program(FLP) to provide further stimulus and will maintain that program, arguing "some monetary stimulus remains necessary to best ensure CPI inflation will be sustained at the 2 percent per annum target midpoint, and that employment is at its maximum sustainable level."

      Today's decision to lower its level of monetary stimulus comes after RBNZ in May dropped its previous guidance of being ready to lower interest rates further due to growing confidence in the economic outlook. 

      In May the central bank also penciled in a 25-basis-point rate hike by September 2022.

      "Recent data indicate the New Zealand economy remains robust despite the ongoing impact from international border restrictions," the central bank said, adding aggregate economic activity is now above the pre-COVID-19 level, with economic confidence growing, and household spending and construction activity continuing to grow along with business investment.

      Looking to inflation, which rose to 1.5 percent in the first quarter of this year from 1.4 percent in the previous two quarters, RBNZ still expects near-term spikes in the second and third quarters but these are expected to be one-off in nature and temporary.

     "The Committee agreed that, in the absence of any further significant economic shocks, more persistent consumer price inflation pressure is expected to build over time due to rising domestic capacity pressures and growing labour shortages," the central bank said, adding there are uncertainties as to the pace and magnitude of any pass-through of costs to inflation in the medium term.

New Zealand maintains policy but doesn't see rate cut

     New Zealand's central bank left its current monetary policy stance steady, including its key interest rate and asset purchase program, but dropped its previous guidance of being ready to lower the rate further as its confidence in the economic outlook is improving.
      The Reserve Bank of New Zealand (RBNZ) kept its Official Cash Rate (OCR) at a rock-bottom 0.25 percent, unchanged since March last year when it was lowered to support economic activity that was being hit hard by the COVID-19 pandemic.
      Since June 2015 RBNZ has been in a monetary easing cycle and cut its rate 10 times by a total of 325 basis points, including last year's 75 point cut in March.
      In addition to last year's rate cut, the central bank has also been purchasing assets to keep long-term interest rates low under its Large Scale Asset Purchase program - a $100 billion limit by June 2022 - and in November last year launched a Funding for Lending Program (FLP) to provide additional monetary stimulus.
       RBNZ also began working with financial institutions to prepare them for the possibility of lowering interest rates to negative levels and wrapped up this work in February.

      In its previous policy statement in April RBNZ confirmed it was still ready to lower OCR if needed.
      Today, however, the bank's monetary policy committee dropped this reference of being "prepared to lower the OCR if required," replacing it with a pledge to maintain the current monetary settings until it is confident inflation is near its 2 percent target and that employment is at its maximum sustainable level.
     "Meeting these requirements will necessitate considerable time and patience," RBNZ said.

     The basis for the central bank's shift in tone reflects the economic recovery worldwide, aided by unprecedented monetary and fiscal stimulus in the wake of the pandemic, and the roll-out of vaccines.

      "Confidence in the outlook is rising as the more extreme negative health scenarios wane given the vaccination progress globally," RBNZ said.

      The central bank's shift toward a normalization of monetary policy mirrors that seen in several other countries, including the Bank of Canada, which has begun to trim its asset purchases, and rate hikes by central banks in emerging and frontier markets, most notably Russia, Brazil, Turkey and Iceland, to curb rising inflationary pressures.

      However, as illustrated by events in India, COVID-19 remains a threat and RBNZ said it was still cautious given the ongoing virus-related restrictions in activity, the unevenness of the economic recovery and the weak level of business investment.

      Nevertheless, in its latest monetary policy report RBNZ raised its outlook for economic growth in coming years and penciled in the first 25 basis point increase in its key interest rate by September 2022, with consecutive increases through June 2024.

      OCR is seen averaging 0.3 percent this year and next year, but then rising to 0.6 percent in 2023 and 1.4 percent in 2024.

      While RBNZ lowered its forecast for gross domestic product for the year beginning in March to shrink by an average of 3.1 percent from February's forecast of 2.4 percent contraction, growth in 2022 is now seen of 4.4 percent, up from 3.8 percent, and then 3.5 percent5 in 2023, up from an earlier 3.2 percent.

      Echoing the U.S. Federal Reserve, RBNZ expects the recent pickup in inflation to be temporary and ease over the course of the year.

      On average RBNZ forecast headline inflation of 1.5 percent this year, down from its February forecast of 1.7 percent, before rising to 1.7 percent in 2022, up from 1.5 percent.

      For the 2020 March year, New Zealand's headline inflation rate averaged 2.5 percent and GDP averaged 1.7 percent.

New Zealand launches new loan tool to boost stimulus

      New Zealand's central bank became the third advanced economy central bank in less than a week to ease its monetary policy stance another notch in response to the economic hit from COVID-19 as it launched a new lending tool and said it was making progress in using negative interest rates, if necessary.

      The Reserve Bank of New Zealand (RBNZ) left its official cash rate (OCR) steady at a record low of 0.25 percent but said its Monetary Policy Committee (MPC) had "agreed to provide additional monetary stimulus to the economy in order to meet its consumer price inflation and employment remit," and this would be provided through a Funding for Lending Programme (FLP) that would begin in December, lowering banks' funding costs.

      The fresh stimulus by New Zealand's central bank comes on the heels of last week's rate cut and additional asset purchases by Australia's central bank and the Bank of England's increase in its bond purchase program.

       RBNZ's decision was largely expected by economists as the central bank in September said it was preparing to launch additional monetary stimulus, such as the new lending program that would offer banks funds at or near the cash rate, a negative interest rate or the purchase of foreign assets.

     While RBNZ kept its target for large scale asset purchases (LSAP) at NZ$100 billion - the amount it was raised it to in August - the central bank further delayed the start of an increase in bank capital "until 2022 to allow banks continued headroom to respond to the effects of the COVID-19 pandemic and to support the economic recovery."

     RBNZ already pushed back an increase in capital requirements for banks by 12 months to July 20121 in March and is now delaying it by another year until July 2022, saying this would strike the right balance between providing more headroom for banks to support lending by drawing on their capital buffers and ensuring financial stability.

     The timing of the capital requirements will be reconfirmed near the end of 2021 while further details about new rules around capital instruments will be announced on Nov. 17, the bank said, adding it would also consult about re-instating loan-to-value ratio (LVR) restrictions on high-risk lending - which are used to reduce the risk to financial stability and were scrapped in March - next month.

     In addition, the central bank said restrictions on dividends paid by banks that were put in place in April this year would remain in effect to at least until March 31, 2021 while it had written to insurers, telling them it expects them to only pay dividend if it is prudent in light of the elevated risks.

     "The Committee agreed that monetary policy will need to remain stimulatory for a long time to meet the consumer price inflation and employment remit, and that it must remain prepared to provide additional support if necessary," RBNZ said.

     As far as cutting interest rates to negative, the central bank said the country's banking system was on track to be operationally ready for negative rate by the end of the year and the MPC "agreed that it was prepared to lower the OCR to provide additional stimulus if required."

     The additional stimulus by New Zealand's central bank comes as financial markets have rejoiced over this week's news of a possible vaccine against COVID-19 by the pharmaceutical company Pfizer and economies have proved to be more resilient than expected, partly due to the policy response.

     "However, members noted that the severe economic effects of the pandemic were persisting and have significantly implications for the Committee in meeting its remit," while the shock to the economy is very large and inflation and employment will remain below targets for a prolonged period.

     New Zealand's inflation rate fell to 1.4 percent in the third quarter from 1.5 percent in the previous quarter while the economy shrank 12.2 percent in the second quarter from the first quarter, the unemployment rate jumped to 5.3 percent from 4.0 percent, and the New Zealand dollar - which has risen since mid-March - rose further to trade at 1.45 to the U.S. dollar, up 2.4 percent since the start of this year.

New Zealand holds policy but stimulus may be needed

    New Zealand's central bank left its benchmark interest rate and its current asset purchase program steady but added that "further monetary stimulus may be needed in order to achieve its remit objectives" as a "severe and prolonged economic downturn would make it difficult to achieve its inflation and employment objectives, and at the same time would pose a material risk to financial stability."

     The Reserve Bank of New Zealand (RBNZ), which last month expanded its asset purchase program for the second time to lower the interest rates for households and businesses, kept its Official Cash Rate (OCR) at 0.25 percent, unchanged since it was cut by 75 basis points in March.

     In August RBNZ raised its Large Scale Asset Purchase (LSAP) program to up to $100 billion from $60 billion and said it was actively preparing for additional monetary stimulus, such as a Funding for Lending Programme (FLP), a negative OCR and purchases of foreign assets.

     Although the recent outbreak of COVID-19 in New Zealand had now been contained and measures to contain the virus were being relaxed, the bank's monetary policy committee agreed the pandemic and travel restrictions could have a significant long-term negative effect on the economy, with lower potential growth, and the outlook for inflation and employment remains subdued.

      "There is substantial uncertainty about the future spread of COVID-19 both domestically and globally, and how economic, health and social activity will adapt," RBNZ said.

     While the contraction of gross domestic product in the second quarter of 12.2 percent from the first quarter was less than expected, it came after a 1.4 percent quarterly contraction in the first quarter, and the balance of risks to the economy remain to the downside.

     At its meeting, the policy committee had discussed the sequencing of how to deploy any additional stimulus, with bank staff advising that deploying FLP with rates near the OCR before the forward guidance period for OCR ends could provide additional stimulus to the economy sooner and this would also provide certainty to financial instituions and speed up the transmission of the programme.

     RBNZ added that members of the committee had agreed they preferred to launch and FLP before the end of 2020 and the banking system is on track to be operationally prepared for negative interest rates by year end.

New Zealand holds rate but boosts QE for 2nd time

     New Zealand's central bank left its key interest rate steady but expanded its asset purchases for the second time to lower retail interest further, citing the risk that persistent low inflation and employment will become embedded in expectations and thus create the need for more monetary stimulus than otherwise.

     The Reserve Bank of New Zealand (RBNZ) left its Official Cash Rate (OCR) at a record low 0.25 percent, unchanged since it slashed it by 75 basis points in March, but increased its Large Scale Asset Purchase (LSAP) program by up to $100 billion from $60 billion.

     RBNZ initially launched its asset purchase program, known as quantitative easing, on March 23 with $33 billion, a week after cutting OCR to the current level, and then boosted it to $60 billion in May.

     At its last monetary policy meeting in June the central bank said it was prepared to expand LSAP and was also continuing to prepare for the use of additional monetary policy tools if needed.

     Today RBNZ said it was still actively preparing for additional monetary stimulus, with its use dependent on the outlook for inflation and employment. 

     These additional tools include lowering OCR into negative territory, supported by funding retail banks directly at near-OCR, complemented by a funding for lending program, or buying foreign assets.

      Explaining why the central bank boosted its purchases of bonds further, RBNZ said the market for bonds had expanded following the government's issue of debt so the central bank could purchase even more than previously without affecting the functioning of the market.

      "The Monetary Policy Committee will provide additional stimulus as necessary to meet its remit," RBNZ said, the same day the country imposed a 3-day lockdown on Auckland after four new cases of COVID-19, ending a 102-day streak without a local infection.

     Inflation eased to 1.5 percent in the second quarter from 2.5 percent in the previous quarter while the unemployment rate also declined to 4.0 percent from 4.2 percent. RBNZ's mandate is to stabilize inflation near its maximum sustainable level and keep inflation at 2.0 percent.

      Under its baseline scenario, RBNZ sees inflation averaging 2.5 percent this year but then decelerating to 0.4 percent in 2021, 0.8 percent in 2022 and 1.5 percent in 2023 while the unemployment rate is seen averaging 4.2 percent this year before rising to 8.0 percent in 2021, 6.6 percent in 2022 and 5.9 percent in 2023.

      Gross domestic product is forecast to contract 6.1 percent for the March year 2021, down from growth of 1.5 percent in 2020, then rebound and grow 6.7 percent in 2022 and 3.3 percent in 2023.

      In the first quarter of this year New Zealand's GDP shrank 1.6 percent from the previous quarter for an annual fall of 0.2 percent.

      OCR is seen unchanged for the next 12 months.

This week in monetary policy: New Zealand, Rwanda, Belarus, Serbia, Uganda, Egypt, Mexico & Peru

    This week - August 9 through August 15 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: New Zealand, Rwanda, Belarus, Serbia, Uganda, Egypt, Mexico and Peru.

    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 33
AUG 9 - AUG 15, 2020:
NEW ZEALAND	12-Aug	0.25%	0	-75	1.00%	DM
RWANDA	12-Aug	4.50%	-50	-50	5.00%
BELARUS	12-Aug	7.75%	-25	-125	9.50%
SERBIA	13-Aug	1.25%	0	-100	2.50%	FM
UGANDA	13-Aug	7.00%	-100	-200	10.00%
EGYPT	13-Aug	9.25%	0	-300	14.25%	EM
MEXICO	13-Aug	5.00%	-50	-225	8.00%	EM
PERU	13-Aug	0.25%	0	-200	2.50%	EM

 

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New Zealand holds rate but omits reference to lower rates

     New Zealand's central bank left its benchmark interest rate steady at essentially zero and said it would continue purchasing government bonds to keep interest rates low "for the foreseeable future," but dropped last month's reference to its readiness to lower its interest rate further.
     The Reserve Bank of New Zealand (RBNZ), which slashed its Official Cash Rate (OCR) by 75 basis points to the current level of 0.25 percent in March, said it was "prepared to provide additional stimulus as necessary," including expanding its Large Scale Asset Purchase (LSAP) programme and was continuing to prepare for the use of additional monetary policy tools if needed.
      In May the central bank said it was prepared to use additional monetary policy tools "if and when needed, including reducing the OCR further."
     However, the record of the meeting of the bank's monetary policy committee said bank staff was working to ensure that a broader range of monetary policy tools would be deployable in coming months, including a term lending facility, reductions in OCR and foreign asset purchases,  as well as reassessing the appropriate quantum of LSAP.
     In May RBNZ expanded its asset purchase program to $60 billion from $33 billion due to a deterioration of the economy and today it confirmed this amount.
     Under LSAP the central bank can purchase New Zealand government bonds, local government funding agency bonds, and government inflation-indexed bonds.
     As in its May statement, RBNZ said the balance of economic risks remain to the downside and although New Zealand has contained the spread of Covid-19 for now, the severe global economic disruption is persisting, leading to "lower economic activity, employment, and inflation abroad and in New Zealand."
     The negative economic impact on New Zealand is exacerbated by international border restrictions and the appreciation of New Zealand's dollar has "place further pressure on export earnings."
     As most other currencies, New Zealand's dollar, known as the kiwi, fell against the U.S. dollar in February and March but has bounced back 15 percent since hitting 1.77 to the U.S. dollar on March 23.
     Today the kiwi was trading at 1.54 to the U.S. dollar, down 3.9 percent this year.

NZ doubles asset purchases, negative rates an option

     New Zealand's central bank kept its key policy rate steady at a record low of 0.25 percent and said negative interest rates were a future option but for now it would boost its purchases of government bonds as further stimulus is needed to support a recovery in economic activity, employment and inflation.
      The Reserve Bank of New Zealand (RBNZ), which slashed its benchmark Official Cash Rate (OCR) by 75 basis points to their current level on March 16, said it would expand its Large Scale Asset Purchase (LSAP) program to $60 billion from an earlier limit of $33 billion as the "economic situation has deteriorated since the previous policy meeting" in light of the global efforts to contain the spread of the COVID-19 pandemic.
     Although measures to contain the virus in New Zealand have limited its spread and the number of new cases had declined, this has severely disrupted manufacturing, tourism, hospitality and construction sectors. It has also reduced global and domestic demand as the income of both households and businesses has fallen, uncertainty has risen and business investment is lower.
     "The sharp contraction in activity is expected to reduce inflation and employment below the Bank's objectives for several years," RBNZ said, forecasting a 22 percent plunge in economic output in the second quarter of this year.
      Although RBNZ said the government's $52 billion spending is the main method for supporting the economy at this time, the balance of economic risks remain to the downside and members of its monetary policy committee agree that a "least regrets monetary policy approach is needed, delivering stimulus sooner rather than later, and thus minimizing the risk that the stimulus delivered turns out not to be enough."
     The central bank will do its part in supporting economic activity by keeping interest rates low for the foreseeable future, RBNZ said, forecasting OCR will remain at its current level through March 2021 and expects a fall in retail interest rates as lower borrowing costs for banks are passed on.
      "The Monetary Policy Committee is prepared to use additional monetary policy tools if and when needed, including reducing the OCR further, adding other types of assets to the LSAP program, and providing fixed term loans to banks," RBNZ said.
      The asset purchase program was expanded to include NZ Government Inflation-Indexed Bonds in addition to New Zealand government bonds and local government funding agency bonds (LGFA).
      RBNZ has cut OCR by 150 basis points since it first began cutting in May 2019 and said a negative rate is an option in the future though presently financial institutions were not operationally ready for such a move so any further rate cut now would not achieve the objective of reducing borrowing rates for New Zealanders.
      However, it added that discussions with financial institutions about preparing for a negative OCR were ongoing but expanded asset purchases was the most effective way to deliver stimulus at this time and this can be scaled as needed.
      Given the uncertainty surrounding the spread of the coronavirus, the monetary policy committee discussed three economic scenarios based on the government's containment measures.
      Under the baseline scenarios, which was the most optimistic of the three, annual gross domestic product growth among New Zealand's key trading partners declines 4 percent this year but then gradually rises from 2021, while inflation averages just over 1.8 percent due to spare capacity and oil prices recover to around US$35 per barrel over the next two years.
     New Zealand's economy, which already slowed sharply last year to the lowest since 2013, is seen slowing to growth of 1.3 percent this year and then contracting 8.4 percent in 2021. In 2022 GDP will bounce back and expand 9.6 percent and then grow 3.3 percent in 2023.
      Inflation, which rose in the first quarter to 2.5 percent, the highest since 2011, from 1.9 percent in the fourth quarter of 2019, is forecasts to average 2.5 percent this year before declining 0.4 percent in 2021 and then rising to 0.9 percent in 2022 and 1.6 percent in 2023.

New Zealand, Iceland embark on asset purchases

     New Zealand and Iceland's central banks joined other major central banks - such as the U.S. Federal Reserve, the Bank of Japan, the European Central Bank and the Bank of England - by embarking on asset purchases to ensure yields on government bonds remain low so they transmit last week's emergency rate cuts aimed at cushioning the damaging economic impact of the coronavirus.
      The Central Bank of Iceland (CBI) central bank last cut its rate for the second time in a week on March 18 in light of the "profound" impact on the economy and communities from the virus, while the Reserve Bank of New Zealand (RBNZ) last cut its rate on March 15.
      At that time RBNZ said large-scale purchases of government bonds would be preferable to rate cuts if further stimulus were needed.
      CBI said the economic repercussions of the disease is expected to require a significant increase in government spending with the country's Treasury issuing new bonds. But this would reduce liquidity and push up yields, disrupting the central bank's actions aimed at easing financial conditions.
      The CBI's monetary policy committee therefore decided to begin direct purchases of Treasury bonds in the secondary market, with further information to follow.
      The RBNZ, which in recent months laid out plans for a Large Scale Asset Purchase program (LSAP) - said the severity of impact on New Zealand's economy from the virus outbreak has increased  and financial conditions had tightened "unnecessarily" over the past week, reducing the impact of its rate cuts.
      It therefore decided to purchase up to $30 billion of New Zealand government bonds, across a range of maturities, over the next 12 months, to support the "economy, build confidence, and keep interest rates on government bonds low."

New Zealand cuts rate 75 bps, next move QE if required

    New Zealand's' central bank lowered its benchmark interest rate by a sharp 75 basis points to add further monetary stimulus in light of the negative impact on economic activity from the outbreak of the coronavirus, adding the rate "will remain at this level for at least the next 12 months."
     The Reserve Bank of New Zealand (RBNZ) cut its Official Cash Rate (OCR) rate to a new record low of 0.25 percent, its first rate cut since August 2019, and said large scale purchases of New Zealand bonds would be preferable to further rate cuts if further stimulus were to be required.
      "The negative economic implications of the Covid-19 virus continue to rise warranting further monetary stimulus," RBNZ said after an extraordinary meeting of its monetary policy committee.
      To support the availability of credit, RBNZ also delayed the start of higher capital requirements for banks by one year to July 1, 2021, and would consider further delays if necessary.
      It estimated this delay would enable banks to supply up to around $47 billion more in lending and the central bank is working on identifying other regulatory changes "to reduce the burden on financial institutions at this time of uncertainty."
      In February RBNZ left its rate steady, assuming the economic impact of the coronavirus, or Covid-19, would be of short duration but that it would have time to adjust its policy if the impact turned out to be larger and more persistent.
      Since then, the outlook for the global economy has deteriorated significantly as global trade, trade, business and consumer spending has been curtailed significantly while governments are imposing a variety of restraints to mitigate the virus transmission.
     "The negative impact on the New Zealand economy is, and will continue to be significant," RBN said, adding demand for the country's goods and services will be constrained, as will domestic production, while spending and investment will be subdued for an extended period.
     On the other hand, RBNZ said the country's financial system remains sound, with financial institutions well capitalized and the government is operating an expansionary fiscal policy and has imminent intentions for a fiscal package to provide both targeted and broad-based stimulus.
     The New Zealand dollar has also depreciated, acting as a partial buffer for export earning.
     In its discussions, the policy committee debated cutting OCR by 50 basis points, with the ability to follow up with more stimulus as needed at the regularly scheduled policy meeting later this month, or an immediate 75 point rate cut.
      "Given views on the required level of stimulus given the economic impact of COVID-19, the Committee agreed a 0.75 percentage point reduction in the OCR would be a more suitable option," RBNZ said.
      The committee agreed the scheduled policy meeting on March 25 was no longer needed.

New Zealand holds rate, time to adjust if coronavirus hits

     New Zealand's central bank left its policy rate steady, saying it assumes the economic impact of the coronavirus outbreak will be of short duration, but if the impact turns out to be larger and more persistent "monetary policy has time to adjust if needed as more information becomes available."
     The Reserve Bank of New Zealand (RBNZ) left its Official Cash Rate (OCR) at a record low of 1.0 percent, unchanged since August last year.
     In 2019 it cut the rate twice by a total of 75 basis points, starting in May when it became the first central bank among developed economies to slash its interest rate and provide a dose of monetary stimulus in response to slowing global growth, hit by uncertainty amid trade conflicts.
     Since the second rate cut in August 2019, RBNZ has kept the rate steady, saying it would remain at a low level for a prolonged period and it would add further monetary stimulus if needed to achieve its inflation and employment objectives.
     In today's policy statement, RBNZ's monetary policy committee dropped the earlier reference to adding further stimulus if needed, noting additional fiscal stimulus is helping reduce the burden on monetary policy and economic growth is expected to accelerate over the second half of 2020.
    In December New Zealand's government announced an investment package of $12 billion, or around 4 percent of gross domestic product, with some $8 billion to be spent between June 2022 and June 2024, mainly on infrastructure.
     However, policy makers still agreed low interest rates were needed to keep inflation and employment close to the targets and the outbreak of the coronavirus in China is "an emerging downside risk."
     At this point, RBNZ said it assumes the economic impact on New Zealand from the coronavirus will be short and mostly felt in the first half of 2020.
     But it also acknowledged that some sectors of the economy, such as tourism and trade, were being significantly affected and although the understanding of the duration and impact of the outbreak was changing quickly, it agreed "the coronavirus outbreak was a risk global growth in 2020."
     "The Committee discussed the monetary policy implications if the impacts of the outbreak were larger and more persistent than assumed and agreed that monetary policy had time to adjust if needed as more information became available," RBNZ said.
     New Zealand's dollar, known as the kiwi, has eased this year but jumped 0.6 percent in response to RBNZ's decision to 1.55 to the U.S. dollar. But it remains 3.9 percent down from the start of this year.
     In an update to its economic projections, RBNZ maintained its forecast for OCR to average 1.2 percent this year but raised it to 1.0 percent in 2021 from November's forecast of 0.9 percent, implying rates will be held steady.
     For 2022 OCR is seen rising to 1.3 percent, from an earlier 1.1 percent, and then to 1.7 percent in 2023.
     Headline inflation is seen averaging 2.2 percent this year, up from 1.5 percent in 2019, but then easing to 1.7 percent in 2021, before rising back to 2.1 percent in 2022 and 2.0 percent in 2023.
     Gross domestic product is seen averaging 1.9 percent this year, down from November's forecast of 2.1 percent and down from 2019's 3.1 percent.
     In 2021 New Zealand's economy is seen growing 2.9 percent, then 2.6 percent in 2022 and 2.0 percent in 2023.

New Zealand cuts rate larger-than-expected 50 bps

     New Zealand's central bank lowered its benchmark Official Cash Rate (OCR) by a larger-than-expected 50 basis points to 1.0 percent to boost employment and inflation as "global economic growth continues to weaken, easing demand for New Zealand's goods and services."
      In May the Reserve Bank of New Zealand (RBNZ) became the first developed market central bank to cut its rate in the current global monetary cycle, and the central bank has now cut its policy rate by a total of 75 basis points this year.
     "In the absence of additional monetary stimulus, employment and inflation would like ease relative to our targets," the RBNZ said, adding "heightened uncertainty and declining international trade have contributed to lower trading partner growth."
      Members of the central bank's monetary policy committee discussed the relative benefits of lowering the policy rate by 25 basis points now along with an easing bias as compared with cutting the rate by 50 points right away.
      In the end, the committee agreed to lower the rate by 50 basis points as it had "agreed that the larger monetary stimulus would best ensure the Committee continues to meet its inflation and employment objectives."

New Zealand cuts rate 25 bps and lowers rate path

     New Zealand's central bank cut its benchmark Official Cash Rate (OCR) by 25 basis points to 1.50 percent, as largely expected, saying there is a need for further monetary stimulus given weaker domestic spending and a more subdued outlook for employment growth and inflation.
     The Reserve Bank of New Zealand (RBNZ) becomes the first developed market central bank to cut its key rate in the current global monetary cycle as the slowdown in the second half of 2018 drags on due to lingering uncertainty over the global outlook amid ongoing trade tensions.
     It is RBNZ's first rate cut since November 2016 but continues the steady decline in New Zealand's interest rates since the current easing cycle began in June 2015, with the new rate a historic low.
     The rate cut was telegraphed by the central bank, which first began preparing investors for a change in its policy in February, when it said the next move could be up or down, and then in March when it said the most likely direction of its next move in the OCR was down.
     While a shift toward easier monetary policy by major central banks, such as the U.S. Federal Reserve and the European Central Bank, since January has reduced the likelihood of a more pronounced global slowdown and faster growth is possible, RBNZ said it "was more concerned about a continued slowdown rather than a faster recovery."
     For the first time in its history, the rate cut was decided by the central bank's new 7-member monetary policy committee rather than its governor, Adrian Orr. This was part of the government's 2018 overhaul of the RBNZ, which also included adding employment to its inflation mandate.
     "The Monetary Policy Committee decided a lower OCR is necessary to support the outlook for employment and inflation consistent with its policy remit," said the committee which includes four from the RBNZ, including the governor, and three external members.
     In its latest forecast, the central bank sharply lowered its outlook for the rate path in coming years, with the key OCR this year seen averaging 1.8 percent before dropping to 1.6 percent in 2020, then 1.4 percent in 2021and 1.6 percent in 2022.
     This compares with February's forecast for OCR to average 1.8 percent, implying unchanged rates, during 2019, 2020 and 2021, before rising to 2.2 percent in 2022.
     While New Zealand's inflation rate is slightly below the mid-point of its 1-3 percent target, RBNZ said employment is broadly at its "targeted maximum sustainable level," but the outlook for employment growth has become more subdued and capacity pressures are expected to ease this year, keeping a lid on inflationary pressures.
     In its May monetary policy statement RBNZ lowered its forecast for consumer price inflation to average 1.5 percent this year, down from its February forecast of 1.6 percent, and compared with 1.5 percent in the first quarter of this year.
     Next year and in 2021 inflation is seen averaging 1.9 before rising to 2.1 percent in 2022 as compared with the previous forecast of 1.7 percent inflation in 2020 and then 2.1 percent in 2021 and 2022.
     New Zealand's economy has gradually but steadily slowed since 2016, with growth in the fourth quarter of last year of 2.3 percent, down from 2.6 percent in the third quarter and 3.4 percent in the fourth quarter of 2017.
    RBNZ forecast growth this year and in 2020 will average 2.6 percent, down from February's forecast of 2.8 percent and 2.9 percent, respectively. In 2021 growth will pick up to 3.1 percent and then ease to 2.5 percent in 2022 as compared with the previous forecast of 2.8 percent growth in 2021 and 2.3 percent in 2022.

New Zealand maintains rate but rate cut now more likely

      New Zealand's central bank left its benchmark official cash rate (OCR) steady at 1.75 percent, as expected, but joined the growing number of central banks that are shifting toward easier monetary policy by saying "the more likely direction of our next OCR move is down" given the weaker global economic outlook and reduced momentum in domestic spending.
      It is the second, but a clear move by Reserve Bank of New Zealand (RBNZ) to prepare financial markets of  easier monetary policy following its statement in February that the next rate move could be "up or down."
      This compared with its statement in November 2018 when it said the next move would be dependent on economic data and it expected to keep OCR steady through this year and into 2020.
      In today's statement, RBNZ did not repeat it expected to maintain the rate in 2019 and into 2020.
      Although RBNZ said employment is near its maximum sustainable level, inflation remains below its target range, which calls for a continued supportive monetary policy, and the balance of risks have shifted to the downside as the risk of a more pronounced global downturn has risen and low business investment weights on domestic spending.
     RBNZ has clearly turned more pessimistic about the outlook for global growth as in February it said there were both upside and downside risks to its outlook.
      "We will keep the OCR at an expansionary level for a considerable period to contribute to maximizing sustainable employment, and maintaining low and stable inflation," RBNZ said, reiterating its guidance from February, which references the central bank's new dual mandate of keeping inflation between 1 and 3 percent, with a focus near 2 percent, while also supporting maximum sustainable employment.
     New Zealand's dollar, known as the kiwi, has been appreciating since October last year but fell more than one percent today after RBNZ's decision to 1.47 to the U.S. dollar, though it is still up 1.4 percent since the start of this year.
     New Zealand's inflation rate was steady at 1.9 percent in the fourth quarter of last year while the economy grew an annual 2.3 percent, down from 2.6 percent in the third quarter.

New Zealand holds rate, pushes back rate hike to 2020

      New Zealand's central bank left its benchmark Official Cash Rate (OCR) at 1.75 percent, as expected, and said it was expecting to maintain this rate through next year and into 2020, one year longer than projected in May, to maximize employment and maintain low and stable inflation.
      But the Reserve Bank of New Zealand (RBNZ), which has kept its rate steady since cutting it in November 2016, also repeated that "the direction of our next OCR move could be up or down."
      In his third statement since taking over as RBNZ governor in March, Adrian Orr's reference to employment and inflation reflects the central bank's new mandate that added employment to its previous mandate that only focused on inflation.
      While most central banks purely focus on inflation, New Zealand this year joined the central banks of the United States, Australia and Norway in having twin mandates.
      "We will keep the OCR at an expansionary level for a considerable time to contribute to maximizing sustainable employment, and maintaining low and stable inflation," Orr said.
       While the RBNZ has often said it would keep monetary policy expansionary for a considerable time for many months, today it pushed back its expected date for the OCR to rise to 1.9 percent from 1.8 percent by 12 months to September 2020 from September 2019 that was projected in May.
       In an update to its monetary policy statement, RBNZ sees OCR rising to 2.0 percent in December 2020, 2.1 percent by March 2021, 2.2 percent by June 2021 and 2.3 percent by September 2021.
       While RBNZ lowered its growth forecast for this year slightly, Orr said there were now "welcome early signs of core inflation rising," with inflation increasing towards the central bank's 2 percent midpoint target as the economy's output tops capacity.
       "This path may be bumpy however, with one-off price changes from global oil prices, a lower exchange rate, and and announces petrol excise tax rises expected," Orr said, adding the central bank would look through this volatility and only respond to persistent movements in inflation.
       RNBZ expects inflation to hit its 2 percent target in March 2021 as compared with December 2020 in May.
      In the second quarter of this year, New Zealand's inflation rate averaged 1.5 percent, up from 1.1 percent in the previous quarter.

New Zealand holds rate, steady for 'considerable time'

     New Zealand's central bank left its benchmark Official Cash Rate (OCR) at 1.75 percent, as widely expected, and said it expects to maintain the OCR "at this expansionary level for a considerable time" to maximize employment and maintain low and stable inflation.
      In his first statement as governor of the Reserve Bank of New Zealand (RBNZ), Adrian Orr added the "direction of our next move is equally balanced, up or down. Only time and events will tell."
      The policy decision was widely expected and the guidance echoed that of his predecessor, Grant Spencer, who handed the reins of the RBNZ to Orr on March 27.
       In his last statement as acting governor, Spencer on March 22 said the RBNZ would keep an accommodative policy for a considerable period but its policy may need to adjust to the numerous uncertainties it faces.
       The RBNZ has kept its rate steady since a 25-basis point cut in November 2016 when it also adopted a neutral policy stance.
       While the central bank's forecast for inflation, growth and OCR was little changed from its previous policy statement in February, Orr now has a dual mandate of employment along with inflation, similar to the United States, Australia and Norway.
       In March the New Zealand government amended the Policy Targets Agreement (PTA), requiring monetary policy to be conducted so it supports maximum levels of sustainable employment along with the requirement that inflation should be between 1 and 3 percent, with a focus on 2 percent.
       In addition, the RBNZ's monetary policy decisions will from 2019 be decided by a Monetary Policy Committee (MPC) of 5-7 members, taking away the current governor's sole authority for policy decisions.
        A majority of the new MPC - four - is planned to come from RBNZ staff while three will be external members, and the governor will be the chair. The Treasury will have a non-voting seat as observer to provide information about fiscal policy.
        In its policy statement, the RBNZ pushed back the expected date for a rate hike to September 2019 from June 2019 when the rate is seen rising to 1.9 percent.
        But in 2020 the RBNZ expects the key rate to rise rapidly, hitting 2.0 percent by March 2020, then 2.1 percent in June, 2.2 percent in September and 2.3 percent in December. By June 2021 the rate is seen at 2.4 percent.
        The delay in the first rate hike since July 2014 mirrors a slightly lower inflation forecast, with inflation first seen hitting 2.0 percent in December 2020 as compared with September 2020.
        There were only minor changes in the central bank's growth forecast, with 2018 growth seen averaging 2.8 percent, down from February's forecast of 2.9 percent, and 2019's growth seen averaging 3.1 percent, down from 3.3 percent.
         In the first quarter of this year New Zealand's inflation rate eased to 1.1 percent from 1.6 percent while Gross Domestic Product grew by an annual 2.9 percent in the fourth quarter of last year, down from 3.0 percent.

New Zealand holds rate, still sees 1st hike in Sept 2019

     New Zealand's central bank left its benchmark Official Cash Rate (OCR) steady at 1.75 percent, as expected, and reiterated its recent guidance that "monetary policy will remain accommodative for a considerable period" as its policy may need to adjust to the many uncertainties.
      The Reserve Bank of New Zealand (RBNZ) also maintained its forecast for the first interest rate hike to come in September 2019 when the OCR rate is seen rising to 1.9 percent from 1.8 percent. The second rate hike is seen coming in March 2020 when OCR rises to 2.0 percent.
      In its latest monetary policy statement, the RBNZ forecast the OCR rate would then rise further to 2.1 percent by September 2020.
      The forecast for inflation this year was lowered to reflect the waning impact of higher fuel and food prices, with the RBNZ saying headline inflation should rise gradually as capacity pressures rise, pushing inflation back to the midpoint of its target range.
      After easing to 1.3 percent by December this year, New Zealand's inflation rate is seen remaining low in early 2018, hitting 0.7 percent by March next year, before slowly rising to 2.0 percent by March 2019.
      New Zealand's inflation rate eased to a lower-than-expected 1.7 percent in the second quarter of this year from 2.2 percent in the first quarter, well within the central bank's target band of 1 -3 percent.