The RBNZ meeting was pretty uneventful

The interest rate was kept at 0.25% and the Large Scale Asset Purchase (LSAP, $100 billion by June 2022) and Funding for Lending Programme (FLP) were kept unchanged. Here is a brief rundown of the meeting which was essentially on hold, with a tiny hint of optimism.

The good

The RBNZ recognised the following positive factors for New Zealand:

  • Global growth outlook has improved with a commitment to monetary and fiscal stimulus as well as the progression of vaccination programmes.
  • The planned trans-Tasman travel arrangements should support income and employment in the tourism sector.
  • Reduced Gov’t bond issuance is placing less upward pressure on New Zealand bonds and provides less scope for LSAP purchases.
  • The changes in LSAP levels (reductions) were not seen as a change in monetary policy, but more to do with market functioning.
  • New Zealand’s commodity export prices are benefiting from strong global demand.

The bad

  • Risks remain.
  • Any inflation higher is likely to be temporary.
  • Short term data highly variable due to the impact from COVID-19.
  • Uneven global recovery.
  • Trans-Tasman travel is two way, so some spending will be abroad. Will it be equalled by those visiting New Zealand?
  • Sometime is expected before the targets of maximum employment and inflation above 2% is met.
  • Is prepared to use negative inflation if necessary. (However, this is unlikely at this stage, so very theoretical).

The ugly

  • Name change. It is hard enough keeping up with all the acronyms and names as it is. The RBNZ is changing the phrase ‘OCR’ (Official Cash Rate) to MPR (Monetary Policy Review). This is to reflect that the RBNZ is using the LSAP and FLP programmes alongside the interest rate.
  • There were quite a few comments regarding housing. Part of the remit was given by the New Zealand Finance Minister regarding the central banks’ influence on house prices. There were a couple of paragraphs in the statement where the RBNZ seemed to explain the pro and cons of their policy on housing markets. It seemed problematic and it’s unlikely the RBNZ will want this happening again.

Read the full RBNZ report here