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RBNZ: VIEW: Westpac write "this is a necessary move, and one that we predicted
would happen in short order. The response to the Covid-19 outbreak has escalated
further in recent days, pointing to an even more severe impact on economic
activity. On top of this, dysfunction in the bond market has actually seen a
rise in longer-term interest rates since the RBNZ's 75bp OCR cut last Monday,
hindering its passthrough to retail interest rates. A $30bn program represents
about half of the government bonds that are currently available in the market
(excluding inflation-linked bonds). But issuance will be ramping up
significantly to fund the $12bn support package that the Government announced
last week, and it's likely that government spending will have to be expanded
further. We think that the RBNZ will end up holding about a third of bonds on
issue after 12 months. At around 10% of annual GDP, the program is similar in
size to the quantitative easing programs that other countries announced during
the Global Financial Crisis, which were effective in bringing longer-term
interest rates down. This does not change our forecast of a 3.1% decline in GDP.
Rather, it was a necessary step to prevent an even worse outcome."