MNI POLICY: RBNZ Boosts Bond Buys, Flags Negative Rates

--Benchmark OCR Left Unchanged at Record Low 0.25%

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of New Zealand increases in Large Scale

Asset Purchase program to NZD60 billion Wednesday and said it is preparing

domestic banks for official interest rates to move into negative territory.

     The LSAP program will be increased from the NZD33 billion committed so far

to a total NZD60 billion to be spent over the next 12 months. The Bank said it

will now include NZ inflation-linked bonds in the list of assets that can be

purchased, mainly to "improve both market function and policy effectiveness." 

     In the statement, Bank Governor Adrian Orr said the list of eligible assets

could be expanded further in future, including possibly to include the purchase

of foreign assets.

     As expected, the RBNZ held interest rates steady at a record low 0.25% but

said that a move into negative territory "will become an option in the future"

and discussions with financial institutions about preparing for a negative OCR

are ongoing.

     The OCR was last cut on March 16 with the intention of being held steady

for 12 months, although RBNZ Governor Adrian Orr has recently fuelled

speculation of further cuts by not ruling out the prospect of negative rates.

     Noting that the NZ economy had been hard hit by the disruptions, the RBNZ

said it had expanded the LSAP as "the most effective way to deliver further

stimulus at this time" through driving lending rates lower.

     "The LSAP program needed to be sufficiently large to keep interest rates

lower across the yield curve," the RBNZ statement said, before going on to say

that program could be further expanded in the future.

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

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