VIEW: Westpac notes that "at the May MPS, we...>

RBNZ: VIEW: Westpac notes that "at the May MPS, we expect the RBNZ will almost

double its QE programme to NZ$60bn. We estimate that total gov't debt will be >

$130bn by June '21, so the RBNZ will be on track to own ~45% of the NZGBs on

issue. In our assessment even more monetary stimulus will eventually be

required. The Bank could just continue with an even bigger QE programme. But

based on RBNZ commentary, we think they would prefer to switch to a -ve OCR at

that point. The RBNZ has said that it would be uncomfortable owning much more

than 40%-50% of the NZGB market, because this would affect liquidity &

functioning. By contrast, the RBNZ has prev. said that it favours the option of

a -ve OCR. We forecast that the RBNZ will lower the OCR by 75bp to -0.5% in

November '20. There are two impediments to the RBNZ reducing the OCR earlier.

- 1) Trading banks' systems are not currently ready to deal with a negative OCR.

- 2) Lowering the OCR this year would break the RBNZ's commitment to keep the

OCR at 0.25% until March 2021. The RBNZ could probably hold its head high by

pointing out that the Level 4. lockdown was a truly extraordinary event, and we

doubt they would come in for much criticism."