[ad_1]
ANALYSIS: The Reserve Bank’s monetary policy statement on Wednesday is shaping up to be a suspense.
The central bank will leave the Official Cash Rate unchanged at 0.25 percent, but beyond that there are a lot of uncertainties.
Chief among them is whether Governor Adrian Orr will do anything to further curb the wavering expectations that OCR will be negative next year, in light of recent positive economic data.
And if it does, what implications could that have for the Reserve Bank’s Financing for Loans scheme, which would have it print perhaps between $ 20 billion and $ 30 billion to lend to banks, to lend again? to its borrowers?
READ MORE:
* Hope has arisen that interest rates will not turn negative next year
* Banks are prepared to expect sub-zero interest loans from the Reserve Bank with few conditions
* The Reserve Bank could accelerate the additional stimulus
The original rationale for loan financing was that it would be necessary to ensure that banks could pass the benefit of negative OCR on to customers.
Loan financing and negative OCR were seen as going hand in hand.
But if OCR stays in positive territory, then do banks really need the scheme, especially considering the volume of cash that has accumulated in interest-free transaction accounts?
Robert Kitchin / things
The Governor of the Reserve Bank, Adrian Orr, is under increasing pressure not to do more to inflate house prices.
The Reserve Bank’s habit of moving OCR only in minimal increments of 25 basis points also seems difficult to explain.
The Reserve Bank of Australia cut its OCR to 0.1 percent last week.
Our Reserve Bank has hinted that the practical floor for OCR here is likely to be around -0.75 percent.
So if more stimulus is needed, why not follow Australia or lower OCR to 0.01 percent to deliver a quarter of maximum easing before delving into the unconventional monetary policy toolbox?
If the Reserve Bank takes this opportunity to develop its loan financing plan, will it choose to place limits on the banks’ ability to use that financing for home loans?
He has hinted that such controls are unlikely.
But there is strong speculation that Finance Minister Grant Robertson is pushing for a rethink given runaway house prices.
Will we see the Reserve Bank move to reintroduce loan-to-value controls on home loans to curb the housing market even as it steps on monetary stimulus?
There are many reasons to question whether further monetary easing is justified at this time.
They include unemployment hitting 5.3 percent lower than expected, consumer spending picking up, and equity markets surging to record highs in hopes of an effective coronavirus vaccine.
But the Reserve Bank supertanker doesn’t always stop at a penny.
ANZ chief economist Sharon Zollner says it would make sense to go ahead with loan financing, as it should lower retail interest rates even with positive OCR.
In fact, it suggests that it could be seen as an alternative to a negative cash rate.
At the end of the day, expect the Reserve Bank to stay generally on the script.
However, what will be interesting is how safe it sounds, this time, reading it.
