The central bank is well placed to manage the wind-down of AMP, official says
The Reserve Bank of New Zealand is well placed to manage the wind-down of additional monetary policy (AMP) tools, said Assistant Governor Karen Silk during the KangaNews New Zealand Debt Capital Markets Summit 2022.
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During the COVID-19 pandemic, changes were made to RBNZ’s monetary policy implementation framework to ensure the current high level of settlement cash, which banks use to meet payment and settlement needs, does not undermine the stance of monetary policy. The changes also mean that the central bank is well placed to manage the evolution of the balance sheet over the coming years.
The framework sets out how the supply of settlement cash is managed to ensure short-term interest rates trade around the OCR.
“Changes to the settlement cash level are not meaningful for the stance of monetary policy, so long as the level is sufficient for payment and settlement needs and balances are remunerated at the official cash rate,” Silk said.
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The level of the OCR, which is based on the assessment and forecast of economic conditions, primarily determines the stance of monetary policy. It is the OCR that matters for inflation targeting.
“It is important to understand that the level of settlement cash does not create inflation or deflation; in fact, in New Zealand, we have experienced periods of large settlement cash growth before, without changes to the stance of monetary policy,” Silk said.
The Reserve Bank said it will continue to supply sufficient settlement cash so that payments and settlements function smoothly. As settlement cash declines, the bank will consider the optimal mix of tools and operations based on market conditions to ensure that short-term interest rates remain anchored around the OCR.
