MNI STATE OF PLAY: RBNZ To Keep Rates Steady, May End QE

The Reserve Bank of New Zealand meets for its monetary policy review this week, and while the central bank is not expected to move on interest rates it could make an announcement on ending its bond buying program.

The RBNZ's most recent Monetary Policy Statement (MPS) in May pointed to a 20 basis point rise in the Official Cash Rate from the current record low of 0.25% in September 2022, but a raft of positive economic news since then has fuelled speculation that the bank could move earlier on rates.

The NZ Institute of Economic Research (NZIER) quarterly survey released earlier this month showed a sharp increase in business confidence, prompting analysts to bring forward their expectations for interest rates to rise as early as November.

The RBNZ usually times its changes in policy to coincide with the release of the MPS, and this is not due again until August.

While this suggests that the central bank will hold rates steady on Wednesday, it could however make an announcement on its QE program, the Large Scape Asset Purchase (LSAP) program.

The RBNZ could make a statement at this week's meeting on tapering or even ending the LSAP. If that announcement does not come in Wednesday's rate review, it will be expected at the August meeting to time in with the next MPS release.

The RBNZ has purchased just over NZD55 billion (USD38.4 billion) under the LSAP program and has set a limit of NZD100 billion, but had conceded it is unlikely to reach this amount.

That is partly due to the central bank's self-imposed limit of buying a maximum of 60% of government bonds on issue, but also reflects a change in outlook as the economy has recovered faster than expected.