At 10:00 on Wednesday (September 23), the Federal Reserve of New Zealand (RNZ) released its latest interest rate decision as scheduled, announcing that it would keep the benchmark interest rate unchanged at 0.25%. The decision was unanimously adopted, in line with market expectations. The Fed maintained its massive asset purchase program (LASP) at a ceiling of NZ $100 billion. After the decision, the NZD was up more than 50 points against the DOLLAR in the short term at 0.6645, before retreating in the short term to now at 0.6615.
Explaining its policy tools first, the RNZ said monetary policy needed to provide long-term support to the economy, that it had made progress on additional monetary policy tools and was ready to provide additional stimulus, including negative interest rates and funding for Banks, with lending funds likely to be available before the end of the year. And the banking system is expected to be prepared for negative interest rates.
Meanwhile, the Federal Reserve Of New Zealand is seeking to buy NZ $1.35 billion of government bonds this week, and LASP will last until June 2022.
The Reserve Bank of New Zealand is expected to keep its benchmark interest rate unchanged until June 2022. However, members agreed that a reduction in the Official cash rate (OCR) would be complementary to other monetary policy tools and were prepared to lower the OCR if necessary to provide additional stimulus. At the same time, the provision of term financing through the Financing loan programme at rates close to OCR will reduce funding costs and borrowing costs.
Analysts had expected, the fed’s interest rate decision in New Zealand without too big change, and that on October 17 to visit New Zealand election seems to be correct, but may have (February) in earlier time cut OCR, suggests that the market price in the possibility of this happening near 50%, given that the fed’s interest rate decision in September has stressed the need to cut OCR, this will further enhance the likelihood of market forecast.
In addition, the west bank of the Pacific in said earlier today, Australia is expected the fed will cut interest rates in October 6, the meeting, because is very strong, the correlation of the Australian and new yuan lost after new dollar less than 0.66, so the market market outlook still need to pay close attention to the dynamic of the fed, Australia the fed’s moves are likely to follow Australia, New Zealand, and change.
On the domestic economy, the Federal Reserve Bank of New Zealand said that restrictions on activity resulting from the coVID-19 outbreak would continue to depress economic activity, business and consumer confidence; Inflation and employment prospects remain subdued; There is great uncertainty as to how novel Coronavirus will spread nationally and globally and how economic, health and social activities will adapt.
Some members of the Commission noted that, in such circumstances, it was difficult to estimate the maximum sustainable level of employment.
Key elements of the Federal Reserve Of New Zealand interest rate decision:
Monetary policy: Monetary policy needs to be adopted over a longer period of time to support the economy; It is expected to keep rates on hold until June 2022, but is prepared to cut rates if necessary to provide additional stimulus; Loan financing schemes (FLP), interest rate cuts or negative rates, foreign asset purchases and interest rate swaps are still under consideration;
Asset purchases: continue to maintain the massive NZ $100 billion asset purchase program;
Economic outlook: Economic activity contracted at a record pace in the second quarter, but by less than previously expected;
Housing: The housing market’s recent strength may indicate a stronger recovery in consumer spending and housing construction.