MNI RBNZ Paper Discusses Unconventional MonPol In NZ Context

--RBNZ Not Projecting Sharp OCR Decline But Still Appropriate To Examine Policy

Options

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of New Zealand has significant further room

to lower the official cash rate and isn't forecasting such a sharp decline but

it may be appropriate to examine the policy options if unconventional policy

needs to be used, an article published in central bank bulletin Wednesday said.

     The article, researched by Sarah Drought, Roger Perry and Adam Richardson,

said that while there is potential to utilize unconventional monetary policy in

New Zealand, there would be limitations on the extent and instruments used,

given the specific characteristics of New Zealand capital markets.

     "It will be important that the Reserve Bank communicates on the objectives

and nature of any unconventional policies that may be implemented," the article

said.

     The article begins by saying that the RBNZ "is not projecting a sharp

decline in the OCR currently, but it is important that the Bank is prepared for

such a scenario by researching unconventional policy options and the issues

associated with their implementation."

     It discusses options including moving the OCR into negative territory,

purchasing domestic and foreign government bonds, purchasing interest rate

swaps, and providing term-lending facilities for banks. 

     But even then, forward guidance would remain an important feature of the

Reserve Bank's monetary policy strategy and exchange rate would remain an

important channel, it said.

     "It is likely that the Reserve Bank would need to consider a combination of

policies, as has been the experience of other countries," it added.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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