Otago Daily Times

OCR to stay put at 0.25% as ex­pected

- JAMIE GRAY Business · Finance · Oceania News · Banking · Wellington, New Zealand · Reserve Bank of India · New Zealand · Forever Living Products · Capital Economics

WELLINGTON: The Re­serve Bank has left its of­fi­cial cash rate un­changed at 0.25%, in line with mar­ket ex­pec­ta­tions.

The bank also said it would roll out a fund­ing for lend­ing pro­gramme (FLP), aimed at low­er­ing in­ter­est costs by of­fer­ing cheap fund­ing to banks, in De­cem­ber.

The Re­serve Bank also left its gov­ern­ment bond­buy­ing cap at $100 bil­lion.

The New Zealand dol­lar firmed a lit­tle to US68.40c from US68.33c just be­fore the 2pm re­lease yes­ter­day.

On March 16, amid the depths of con­cern about the world­wide spread of Covid­19, the cen­tral bank cut the OCR by 75 ba­sis points to its cur­rent level and said it would re­main at that level ‘‘for at least the next 12 months’’.

In yes­ter­day’s state­ment, the Re­serve Bank said eco­nomic ac­tiv­ity since the Au­gust mon­e­tary pol­icy state­ment, both in­ter­na­tional and do­mes­tic, had proved more re­silient than ear­lier as­sumed.

In New Zealand, this trend was ev­i­dent across a range of in­di­ca­tors, in­clud­ing em­ploy­ment, house­hold spend­ing, GDP and as­set prices.

These out­comes re­flected the ef­fec­tive­ness of the health and eco­nomic pol­icy re­sponses to the ini­tial shock, it said.

‘‘How­ever, the Covid­19 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,’’ it said.

The out­look for global eco­nomic ac­tiv­ity re­mained 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,’’ the Re­serve Bank said.

The bank said in­ter­na­tional bor­der re­stric­tions would con­tinue to cur­tail in­ter­na­tional trade and mi­gra­tion, with vari­able ef­fects 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.

Mem­bers of the bank’s mon­e­tary pol­icy com­mit­tee, in notes re­leased with the Re­serve Bank’s state­ment, said the ef­fec­tive­ness of an FLP would de­pend on fi­nan­cial in­sti­tu­tions pass­ing on de­clines in their fund­ing costs to bor­row­ers, and agreed to mon­i­tor the passthroug­h to lend­ing rates closely.

The com­mit­tee said sim­i­lar pro­grammes de­ployed over­seas had shown they were ef­fec­tive.

On the ba­sis of yes­ter­day’s state­ment, ASB said it now ex­pected the OCR would re­main on hold at 0.25% ‘‘although the bal­ance of risks will re­main skewed to­wards the need for fur­ther sup­port’’.

ASB chief econ­o­mist Nick Tuf­fley said the FLP scheme could add enough stim­u­lus to en­sure the New Zealand eco­nomic re­cov­ery re­mained suf­fi­ciently on track.

‘‘Our as­sess­ment of how the econ­omy is track­ing sug­gests the FLP scheme could be enough stim­u­lus to en­sure the New Zealand eco­nomic re­cov­ery re­mains suf­fi­ciently on track,’’ Tuf­fley said.

How­ever, Cap­i­tal Eco­nomics, which pre­dicted in March rates would go neg­a­tive, said it still ex­pected the rate to go to mi­nus 0.25% at the bank’s April meet­ing.

‘‘Ad­mit­tedly, if a vac­cine be­comes avail­able and is dis­trib­uted early next year it is pos­si­ble that the bank de­cides not to cut rates into neg­a­tive ter­ri­tory,’’ Cap­i­tal Eco­nomics said.

‘‘On bal­ance, though, we think the eco­nomic scar­ring from the pan­demic should be enough for the bank to cut next year even if a vac­cine has started rolling out.’’ — The New Zealand Herald

❛ . . . the Covid­19 shock to the econ­omy is very large and

per­sis­tent . . .

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