MNI INTERVIEW: NZ Needs Less QE Than Thought-Ex RBNZ Economist

New Zealand does not need as much fiscal or monetary stimulus as previously thought, former Reserve Bank of New Zealand chief economist Sharon Zollner told MNI, adding that lower-than-expected government borrowing and economic recovery mean the RBNZ is unlikely to reach the NZD100 billion cap on its bond buying program by the target of June 2022.

"The QE program is fading into the background as the government issues few bonds and the economy recovers," Zollner, chief economist at the ANZ bank in NZ after leaving the RBNZ in 2006, said in an interview on Friday.

Her ANZ colleagues have forecast that the RBNZ may only buy NZD75 billion in bonds by June 2022, although they may continue after that date as the central bank unwinds its positions. Around NZD33 billion in bonds have been purchased so far.

RATES FLAT THIS YEAR

Commenting on this week's RBNZ decision to leave policy settings unchanged, including record-low 0.25% official interest rates, Zollner said the bank has "the luxury of waiting before they make the next call."

While economic data was mixed, 2021 would "not be a deflationary year", but at the same time "the hurdle to either raise or cut rates is high."

"There is a high tolerance for inaction," said Zollner.

She described the RBNZ as being "in wait and see mode" and expected the bank to sit tight as inflationary pressures started to build. Interest rates will be as "flat as a pancake" this year.

Recent government moves to cool the rampant housing market, where prices have soared 23% in 12 months, were a downside risk, but Zollner did not expect this to create conditions for further rate cuts.