RBNZ increased quantitative easing to add money to the economy and keep a lid on lending rates
The Reserve Bank of New Zealand (RBNZ) has decided to keep the official cash rate (OCR) at 0.25% in August, fulfilling its promise that it would not make any cuts over the next few months.
The RBNZ Monetary Policy Committee confirmed its decision to hold the OCR this month – however, it decided to increase the Large Scale Asset Purchase (LSAP) programme from $60 billion to $100 billion to lower retail interest rates and add money to the economy.
“Reflecting a possible need for further monetary stimulus, the committee also agreed that a package of additional monetary instruments must remain in active preparation,” the committee said in a statement.
“The deployment of such tools will depend on the outlook for inflation and employment. The package of further instruments includes a negative OCR supported by funding retail banks directly at near-OCR. Purchases of foreign assets also remain an option.”
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While the committee noted the strong rebound in the economy following the first lockdown, it said that the outlook is still uncertain due to the impacts of the pandemic on the global economy.
“Such uncertainty is stifling household and business spending appetites, as highlighted in confidence surveys. Given the ongoing health uncertainty, there remains a downside risk to our baseline economic scenario,” the committee said.
“Ongoing support for domestic economic activity is being provided through significant government spending on business assistance and household income support. This will be supported by a rising level of government investment. However, there will be a transition of policies in the near-term, with the announced end of the wage subsidy likely to coincide with a decline in employment.”
The committee offered assurances that it will provide additional stimulus as necessary to meet its remit.
“Monetary policy will continue to provide important economic support in the period ahead. Its effectiveness is evidenced by retail banks' lower funding costs and lending rates, which are benefiting businesses and households. It remains in the long-term interest of banks to fully pass on the benefits of lower funding costs to their customers,” it said.
