- RBNZ is expected to maintain policy settings with the OCR to be kept at 0.25% and LSAP at NZD 100bln
- The central bank has remained dovish and previously stated it was prepared to lower the OCR to provide additional stimulus if needed although, recently withdrew temporary liquidity measures
- Weak data suggests stimulative policy remains appropriate and lack of press conference adds to the likelihood of no policy tweaks
OVERVIEW
RBNZ is expected to keep its policy settings unchanged with the OCR likely to be maintained at 0.25% and the Large Scale Asset Purchase programme to be kept at NZD 100bln, while OIS price in a 0% chance of a change in rates in H1 and just a 14% chance of a 25bps hike by year-end.
RBNZ RHETORIC AND NORMALISATION OF SOME PANDEMIC-RELATED MEASURES
The central bank stated during the last meeting that the outlook ahead remains highly uncertain and prolonged monetary stimulus is necessary whereby the committee agreed it must remain prepared to provide additional support if needed. The RBNZ also stated that it will maintain monetary stimulus until it is confident CPI will be sustained around 2% and employment is above the maximum sustainable level but expects a prolonged period before these conditions are achieved, while it added that operational work to enable negative rates was complete and that it was prepared to lower the OCR to provide additional stimulus if needed. However, the central bank’s actions since then have been more towards normalisation as it announced the withdrawal of some of the temporary liquidity facilities set up during the COVID pandemic such as the Term Auction Facility where banks have been able to borrow funds for 3, 6 and 12 months using eligible collateral including NZ government securities, registered bank bills and residential mortgage backed securities, while it also removed the Corporate Open Market Operation where banks have been able to borrow funds for 3 months using eligible collateral including corporate securities and asset backed securities although it stated that this will have no implications for its monetary policy stance. Furthermore, the central bank eased dividend restrictions for commercial banks to allow payouts of up to 50% of earnings from a prev. 100% restriction, while Deputy Governor Bascand noted that the economy had rebounded to a stronger position than anticipated and as such, the complete restriction on dividends was no longer required.
OTHER RECENT DEVELOPMENTS
The COVID-19 situation on both sides of the Tasman remains encouraging and New Zealand PM Ardern recently announced a quarantine-free travel bubble with Australia from April 19th which she said will give the economic recovery a boost and therefore suggests less urgency for the central bank to act. The central bank also has a new remit which took effect from March that requires it to consider the impact of its actions on the government’s policy of supporting more sustainable house prices whereby it will have to outline, amongst other things, the impact of its decisions on the government’s housing objectives. However, the MPC’s targets remain unchanged which are to maintain stability in consumer price inflation and contribute to maximum sustainable employment.
DATA RELEASES
Data releases since the last meeting have been soft including Q4 GDP which printed at a surprise contraction Q/Q at -1.0% vs. Exp. 0.1% (Prev. 14.0%, Rev. 13.9%) and Y/Y at -0.9% vs. Exp. 0.5% (Prev. 0.4%, Rev. 0.2%). Furthermore, Q4 Retail Sales growth slowed to 4.8% (Prev. 8.3%) and Volume of Building Work surprisingly contracted at -1.5% vs. Exp. 3.0% (Prev. 34.6%), while the latest business surveys were also discouraging as ANZ Business Confidence slipped deeper into negative territory of -8.4 (Prev. -4.1). These weak releases therefore suggest that stimulative policy remains appropriate and will likely influence the central bank to maintain its dovish tone.
ANNOUNCEMENT
The announcement is scheduled for 03:00BST/22:00EDT in which the focus will initially be on the rate decision and LSAP which are both expected to remain unchanged 0.25% and NZ100bln respectively, while the Funding for Lending Programme is expected to be maintained which provides funds to eligible counterparties of up to 6% of their total outstanding loans to businesses for 3 years at the same rate as the OCR. Participants will also be scrutinising the statement for clues such as if the central bank maintains a readiness to reduce rate