MNI REVIEW: RBNZ Policy On Hold; Further Options Progressing

The Reserve Bank of New Zealand left monetary policy unchanged Wednesday, but signaled that more policy easing was possible, including negative interest rates, a funding facility for commercial banks and the purchase of foreign assets.

The Monetary Policy Committee kept rates on hold at a record low 0.25% and affirmed the NZ$100 billion program to buy NZ Government securities, saying prolonged monetary support was still necessary.

The committee also discussed possible future policy measures, such as a Funding for Lending Programme (FLP), a negative OCR, and purchases of foreign assets and interest rate swaps, saying progress hade been made on the ability to deploy such policies if needed.

A funding for lending program "would be ready before the end of this calendar year", the RBNZ said, and was a logical first step before lowering rates further.

"Having an FLP in place earlier would provide certainty to financial institutions planning their funding needs, and speed up the transmission of the programme by allowing banks to replace funding as it matures over time," the statement published alongside the policy decision said.

The RBNZ also noted market expectations for zero interest rates this year, and that this had already contributed to lower wholesale interest rates.

The banking system, the RBNZ statement said, "is on track to be operationally prepared for negative interest rates by year end."

"Members agreed with the previous assessment that a lower OCR would be complementary to its other monetary policy tools, and that it was prepared to lower the OCR to provide additional stimulus if required," the statement said.

No timetable was given for foreign asset purchases, although again the RBNZ said progress had been made to the future deployment if needed..

While NZ had opened the economy after the pandemic disruptions, it remained weak and more stimulus was required, the bank said.