RBNZ Delivers Further Easing In Monetary Policy

By Glenn Dyer | More Articles by Glenn Dyer

The Reserve Bank of NZ is persisting with its very expansive monetary policy settings and joining the Reserve Bank of Australia in lending money to banks to on-lend to customers.

The move, confirmed in yesterday’s post-meeting monetary policy statement came as the RBNZ (like the RBA with the Australian economy) said the Kiwi economy was doing better than previously forecast.

The RBNZ will start a Funding for Lending scheme in December with few conditions on how banks could on-lend the money.

The major recipients of the loans will be the big four Aussie banks – Commonwealth, NAB, ANZ, and Westpac – the same as with the RBA’s scheme.

Assistant governor Christian Hawkesby said they expected to spend $NZ28 billion on the scheme if banks took up their full allocations.

The scheme is similar to the TFF – term Funding facility of the RBA which now has $A200 billion available to be used by June 30. More than $A80 billion has already been on lent and has helped power a surge in home lending and a smaller rise in lending to business.

The RBNZ scheme was confirmed in its monetary policy statement on Wednesday. The money will be lent to the banks at the Kiwi’s cash rate, 0.25% which was maintained in yesterday’s statement.

That will try and keep lending rates to banks and consumers as low as possible, as the RBA scheme does.

The RBNZ didn’t follow the RBA down the route of cutting the cash rate to an ultra-low 0.10%.

The Reserve Bank confirmed that its $100 billion quantitative easing program would continue – the RBA only started its $100 billion QE in the past week (called a Large Scale Asset Purchase Programme).

The RBNZ also indicated in a separate announcement that it was thinking to reintroduce loan to valuation (LVR) restrictions to try put a limit on house prices and prevent younger homeowners from overcommitting.

In its post-meeting statement, the Reserve Bank acknowledged economic activity had proved “more resilient than earlier assumed” at the time of its last monetary policy statement in August.

“In New Zealand, this trend was evident across a range of indicators, including employment, household spending, GDP, and asset prices. These outcomes reflect the effectiveness of the health and economic policy responses to the initial shock,” the statement said.

“However, the COVID-19 shock to the economy is very large and persistent, and inflation and employment will remain below the remit targets for a prolonged period. These outcomes are despite the current significant fiscal and monetary stimulus.

“The outlook for global economic activity remains dependent on the containment of the virus. While recent news on vaccine developments is positive, there remains a long and uncertain lag before any widespread vaccine deployment may be achieved.

“Meanwhile international border restrictions will continue to curtail international trade and migration, with variable impacts across industries and regions. International prices for New Zealand’s exports have remained resilient, although export returns continue to be partly offset by the New Zealand dollar exchange rate.

“Domestically, fiscal stimulus remains significant even with the Wage Subsidy scheme having now run its course. Government spending on business assistance and household income support continues, and government investment will rise.

“However, we expect an ongoing increase in unemployment as the economy adjusts. Consumer price inflation is also projected to remain at the lower end of the remit target range for a period, and inflation expectations remain subdued,’ the statement said.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →