When $60b buy-up is no surprise
Technically there were no surprises in yesterday’s Reserve Bank Monetary Policy Statement — which is a pretty good reminder of just how crazy the world is right now. Almost everything in it would have been completely shocking just a few months ago.
The RBNZ nearly doubled its asset purchasing programme — from $33 billion to $60b.
At this point Reserve Bank Governor Adrian Orr could probably offer to buy up my rare Led Zeppelin records and the market would still take it in its stride.
Joking aside, every monetary policy tool available to the RBNZ — including buying international assets — remains on the table as it confronts one of the most brutal economic downturns in the nation’s history.
And $60b is already a pretty big number for a small country. It assumes the Government is about to undertake
tens of billions of dollars in borrowing in the year ahead.
The Reserve Bank’s move means the Government can issue those bonds without stretching local debt markets and pushing retail rates higher. In fact the programme has been working and the Reserve Bank expects retail interest rates will fall further.
The Official Cash Rate stayed on hold at 0.25 per cent but further cuts — including a dip into negative territory — were not ruled out. “I know the word is . . . over used, but it is unprecedented,” said Orr, when asked to describe the current economic situation.
The RBNZ published new economic forecasts, based on a range of scenarios, all much darker than their last. It’s base case sees GDP plunging 22 per cent this quarter before rebounding to end the year down about 4.5 per cent.
Unemployment rises to 9 per cent, inflation briefly becomes deflation falling to -0.4 per cent in 2021.
Perhaps the settings and policies in place now will be enough to see us through the worst. But it’s clear there is still a long way to go and the RBNZ is prepared to do — or buy — whatever it takes.