NZ Reserve Bank sticks to script, keeps OCR at 0.25%

The Reserve Bank, as expected, has kept its official cash rate (OCR) unchanged at 0.25 percent and left its bond purchase limit at $ 100 billion in today’s monetary policy report.

On March 16, amid deep concern over the global spread of Covid-19, the central bank lowered its OCR by 75 basis points to the current level and said it would remain at that level “for at least the next 12 months.”

The bank’s message about the future trajectory of OCR has remained the same since March, but current market prices suggest it could move sooner.

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Analysts had expected the bank to reiterate its March message in today’s report.

True to form, the Reserve Bank said: “The Official Cash Rate (OCR) remains at 0.25 percent according to the guidance issued on March 16.”

The large-scale asset purchase program cap, or quantitative easing, involves the bank buying up to $ 100 billion in government bonds, local government financing agency bonds, and inflation-indexed New Zealand government bonds. in the secondary market by June 2022.

The program aims to pump money into the economy and lower the costs of borrowing for households and businesses.

Given that monetary policy has reached its conventional limits and unconventional monetary policy has been implemented, the Reserve Bank is considering its next steps.

ANZ said New Zealand is in the midst of a deep recession, “the worst part of which has yet to be fully felt.”

“With OCR already very low, and quantitative easing is expected to eventually reach its limits, the Reserve Bank is likely to look to use other options in its toolkit to further stimulate the economy,” ANZ said.

“At present, market prices suggest a high probability that the Reserve Bank of New Zealand will take the official cash rate negative,” he said.

In today’s report, the Reserve Bank’s monetary policy committee said progress was being made in the Bank’s ability to implement additional monetary instruments.

These instruments include a Loan Financing Program (FLP) – cheap loans to banks – negative OCR and purchases of foreign assets.

“The committee agreed that these instruments can support each other to boost economic activity.

“Members also agreed that alternative instruments can be implemented independently and noted that the FLP would be ready before the end of this calendar year,” he said.

The Reserve Bank said that any significant change in the global and national economic outlook would continue to depend on the containment of Covid-19.

“International border restrictions will continue to significantly reduce migration and tourism, and lead to uneven prospects for activity across industries and regions,” the bank said.

“Commodity prices for New Zealand exports remain strong, but this has been partly offset by the New Zealand dollar exchange rate moderating the return to local export producers,” he said.

The New Zealand dollar has performed well since it plunged in March on the back of Covid-19. It was last traded at just over US66c, and the Reserve Bank announcement changed little.