MNI INSIGHT: RBNZ Set For More Bond Buys As Borrowing Rises

--RBNZ To Examine Policy Options, QE Seen Main Tool For Now

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of New Zealand could increase the size of

its bond buying program this month, as it looks to support the government's

"Recovery Budget" for up to NZD15 billion due in coming weeks, MNI understands.

     While it continues to study additional unconventional monetary policy

measures, an expansion of the current NZD33 billion quantitative easing program

is the most likely response.

     Other options being examined include negative interest rates, the purchase

of corporate bonds and the direct buying of NZ Government bonds. But for now

these measures are likely to be kept in reserve unless the NZ economy struggles

in its recovery from Covid-19 disruptions.

     The Bank has already committed to buying NZD30 billion in government bonds

and NZD3 billion in local government debt.

     This already represents around half of NZ government bonds in circulation,

although issuance is set to rise sharply in coming months. The RBNZ has also

doubled the government's standing overdraft facility for short-term cash needs

to NZD10 billion over the last three months.

     Details are expected to emerge next Wednesday, when the RBNZ Board meets to

discuss monetary policy and the quarterly statement is released.

     --ECONOMIC HIT

     Although New Zealand has been one of the global public health success

stories in controlling the pandemic, and social distancing rules are currently

being eased, the economy is still set to take a major hit which could require

further monetary and fiscal response.

     First quarter employment data will be released Wednesday and is expected to

show at least the initial impact from the disruption. Unemployment ended 2019 at

4.0%, with market expectations of a rise to 4.6% in Q1 2020, before leaping to

around 10% at some point this year.

     Westpac forecasts a 6.3% drop in GDP in 2020 followed by a rebound of 4.3%

in 2021.

--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

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