No negative cash rate for RBNZ

WELLINGTON: The Reserve Bank has ruled out a negative cash rate for now but it will buy up to $60 billion of government bonds.

The central bank’s monetary policy committee held the official cash rate at 0.25% yesterday and said the current goal of monetary policy tools was to reduce borrowing rates for New Zealanders and ‘‘further OCR reductions at this stage would not be effective in achieving that’’.

As a result, it ‘‘reaffirmed its forward guidance that the OCR will remain at 0.25% until early 2021’’.

However, ‘‘the monetary policy committee is prepared to use additional monetary policy tools if and when needed, including reducing the OCR further, adding other types of assets to the LSAP [largescale asset purchase] programme, and providing fixedterm loans to banks,’’ it said.

The central bank also said discussions with financial institutions about preparing for a negative OCR were continuing.

The New Zealand dollar fell yesterday, trading at US60.11c at 5pm, from 60.82c immediately before the release.

In an unusual move, the Reserve Bank did not publish a full interest rate track projection. Its forecast showed rates on hold until March 2021.

While the economic growth, inflation and tradeweighted index forecasts all go to June 2023, the interest rate forecasts are left blank after March next year.

Instead, the central bank said it was opting for what it called an ‘‘unconstrained OCR’’, which demonstrates the broad level stimulus needed to achieve the Reserve Bank’s monetary policy objectives.

In a chart, the unconstrained OCR dipped to a baseline of minus 2%. However, a range of monetary policy instruments, including largescale asset purchases could be used to generate this level of stimulus, it said.

‘‘It does not necessarily represent a negative OCR.’’

The expanded $60 billion largescale asset purchase programme includes New Zealand government bonds, Local Government Funding Agency bonds and, now, New Zealand government inflationindexed bonds.

It had previously said it would buy up to $30 billion of New Zealand government bonds and $3 billion of local government bonds.

‘‘The balance of economic risks remains to the down side. The expansion to the LSAP programme aims to continue to reduce the cost of borrowing quickly and sharply.

‘‘This is preferable to delivering a smaller amount of stimulus now, only to risk later realising more should have been done,’’ the bank said. — BusinessDesk