New Zealand to hold interest rate meeting

The Reserve Bank of New Zealand (RBNZ) will today hold a monetary policy meeting with the expectation that Governor Adrian

NewZealand Nikkei

Photo: Nikkei

The Reserve Bank of New Zealand (RBNZ) will today hold a monetary policy meeting with the expectation that Governor Adrian Orr and the committee will keep the official cash rate (OCR) unchanged.

Throughout the COVID-19 pandemic, the RBNZ has responded by aggressively cutting rates to 25 basis points and substantially expanding its Large Scale Asset Purchase programme (LSAP) to $39 billion. Despite the relatively early exit from lockdown, the New Zealand economy suffered a record decline of 1.6% in what was the largest quarterly fall since 1991.

Despite the shrinking of the economy, New Zealand is poised to recover. The country’s predominantly food and agriculture-based exports are less likely to see weak overseas demand, and it is expected that the OCR will remain unchanged at 0.25% for the rest of the year.

However, a negative OCR still remains an option, especially given the volatility of the New Zealand dollar in recent weeks. Governor Orr has suggested that this is unlikely to happen before next year; banks have been asked to report on how ready their systems are for a negative cash rate by December 1. Still, the RBNZ may wish to convey a tempered tone to contain further appreciation of the NZ dollar. Moreover, there may be potential for further expansion of the LSAP to now include foreign assets.

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