RBNZ Preview - June 2020: RBNZ To Hold Fire

MNI Point of View:

After expanding its LSAP programme to NZ$60bn at last month's MPS, the RBNZ is widely expected to stand pat on its main policy settings as it takes stock of the condition of New Zealand's economy in the midst of the coronavirus crisis. The outlook remains uncertain, but some green shoots have appeared in domestic economic backdrop, which should allow the MPC to shelve further steps for now.

Since the last monetary policy meeting, New Zealand managed to become coronavirus-free for more than three weeks. Despite the detection of several imported cases later on, the South Pacific country has earned wide acclaim for the effectiveness of its infection containment strategy. Reining in the coronavirus outbreak has allowed New Zealand to move to Alert Level 1 earlier than expected. The government relaxed virtually all of the restrictions but tight border controls, allowing social and economic life to return to relative normalcy.

Albeit New Zealand's economy is facing unprecedented headwinds, the RBNZ has already deployed powerful monetary stimulus and there seems to be no urgency to add more at the upcoming meeting. Policymakers may afford to wait and watch how the steps taken so far are filtering through the economy. It should be an uneventful Monetary Policy Review, with language coming to the fore.

• Base Case: No change to the main policy settings. Readiness to add stimulus if needed, with various policy options on the table.
• Dovish Risks: Downbeat messaging about the economic outlook. Signalling that negative interest rates are more likely than not.
• Hawkish Risks: Optimism about New Zealand's economic recovery path. Rhetoric downplaying the potential for negative interest rates.

RBNZPrevJune2020.pdf