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RBNZ: VIEW: TD Securities note that "the RBNZ provided a strong signal that its
LSAP is likely to be upsized at next month's meeting. We assume the PREFU is
announced after next month's RBNZ meeting and that the QE program is extended to
Aug'21. However the size of the program is contingent on a number of variables:
If purchases are capped at 50% of outstandings across NZGBs, Linkers & LGFAs,
this would imply a LSAP of NZ$78b. If the PREFU is published before next month's
RBNZ Meeting, this would be a strong signal that government spending is likely
to have stepped up. This would mean increased NZGB issuance, in turn providing
scope to upsize the LSAP > NZ$78b. If there is no change in the supply outlook,
and the LSAP is > NZ$78b with an Aug'21 expiry, then this would imply the Bank
is setting aside funds to purchase offshore assets to weaken the NZD. If the
LSAP exceeds the projections without any increase in supply, this would point to
the RBNZ's intention to purchase foreign assets. At a LSAP for ~A$80b, we may be
on the conservative side of estimates. That said the risks to our forecast are
for a larger LSAP and there are other options the RBNZ has in its unconventional
toolkit to lower the cost of funding."