MNI PREVIEW: RBNZ To Take Stock, Keep Policy Unchanged In June

--Likely To Repeat Can Use Negative Rates, More QE If Needed In Future

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of New Zealand is set to keep policy

unchanged Wednesday, leaving the official cash rate at 0.25% and the cumulative

stock of asset purchases to be completed over the next 12 months at NZD60

billion.

     With New Zealand ahead of the curve in fighting the epidemiological impact

of the Covid-19 pandemic, the central bank can use the June meeting as a chance

to take stock of the economy, studying how previous policy decisions are playing

out. 

     The RBNZ has been clear that it will not rule out unconventional policy

measures if needed, including the use of negative interest rates, but it would

be unusual for the Bank to make a major announcement at a meeting which does not

include a quarterly Monetary Policy Statement.

     In addition to leaving open the move to negative rates, the RBNZ has also

not ruled out buying NZ Government bonds on the primary market or buying

corporate debt.

     The Bank has written to commercial banks asking them to be ready for

negative rates by the end of the year, but has said this may not be necessary if

the economy improves.

     --POLICY IN PLACE

     The Bank cut the OCR by 75bps in March and left it unchanged in May, as it

focused on its Large Scale Asset Purchase (LSAP) program to buy NZ Government

and semi-Government debt on the secondary market.

     The NZ economy contracted by 1.6% in the first quarter of 2020 and a much

larger contraction is expected in the second quarter, but the national lockdown

ended earlier in June after the country's success in containing the virus.

     This has led to some hopes the downturn could be less than initially

feared, with a quicker recovery coming through.

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

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