MNI PREVIEW: RBNZ Eyes More Bond Buys As Lockdown Lifts

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of New Zealand is expected to boost its

government bond buying scheme at its May meeting, as the central bank looks to

support an economy set to slowly emerge from Covid-19 lockdowns.

     Already committed to buying NZD30 billion in government bonds and NZD3

billion in local government debt, the RBNZ could move to double the scale of

purchases at the May 13 meet.

     Alongside increased asset purchases, there is speculation in some quarters

that the RBNZ could cut rates again, although most analysts expect that move

later in the year.

     The RBNZ slashed its benchmark cash rate to a record low 0.25% in March and

said it would be held at that level for the next 12 months, but speculation has

been rising in recent weeks that more cuts could be implemented, with

suggestions that the OCR could go into negative territory, a move not ruled out

by governor Adrian Orr.

     Orr has also suggested the Bank could boost its asset purchase program by

buying bonds directly from the NZ Government, although this idea was rejected --

for the moment -- by Finance Minister Grant Robertson.

     --RECOVERY

     The RBNZ recently said it thought domestic economy had shrunk by 37% during

recent virus-driven 'level four' lockdowns in the month from March 25.

     New Zealand will move from level three to level two restrictions this week,

but the economy is expected to be slow to recover, particularly if the

implementation of the 'Trans-Tasman Bubble' idea allowing travel with Australia

is delayed.

     According to the RBNZ, economic activity fell an estimated 19% under 'level

three' restrictions and will fall by 8.8% under 'level two'.

     The RBNZ will publish its quarterly Monetary Policy Statement alongside

Wednesday's policy decision, outlining more about its economic forecasts and

policy plans.

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

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