MNI INSIGHT: RBNZ Sees Kiwi Rise As Growing Threat To NZ Econ

--Foreign Bond Buys Could Be Deployed To Stem NZD Gains

By Lachlan Colquhoun

     SYDNEY (MNI) - Currency strength is a major factor behind the Reserve Bank

of New Zealand's dovish outlook and its consideration of measures such as buying

foreign bonds, MNI understands.

     The RBNZ has not provided details of any potential foreign asset purchases,

but it is understood they would comprise highly-rated bonds issued by foreign

governments, such as U.S. Treasuries.

     Although NZ has moved out of lockdown, the central bank remains concerned

over the fragility of the domestic recovery, and, as other monetary policy tools

lose effectiveness, its concern over the New Zealand dollar is growing.

     The NZD firmed from US57 cents in late March to US66 cents on July 6, close

to the 12-month high of US67 cents seen in July 2019.

     --OCR

     The Official Cash Rate has been slashed to 0.25% and the RBNZ has advised

financial institutions to prepare for the possibility of negative rates,

although central bankers remain conscious of the operational challenges these

would pose. It has also launched a programme to buy up to NZD 60 billion in

government and semi-government bonds.

     Other measures are also being considered, including a term-lending

facility, with a spokesperson saying the RBNZ was "open to exploring the

available options to stimulate the economy if required."

     But, while domestic stimulus is still the key priority, the lure of a lower

exchange rate may draw a policy response from the RBNZ later in 2020.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: MMNRB$,M$A$$$,M$N$$$,MT$$$$,MX$$$$]