RBNZ keeps the steady hand on rates, ends QE – UOB

Economist at UOB Group Lee Sue Ann and Senior FX Strategist Peter Chia assess the latest RBNZ event.

Key Quotes

“While the Official Cash Rate (OCR) was kept steady at 0.25% and the Funding for Lending Programme (FLP) was left unchanged following its July meeting, the Reserve Bank of New Zealand (RBNZ) agreed to reduce the current stimulatory level of monetary settings by halting additional asset purchases under the Large Scale Asset Purchase (LSAP) programme by 23 July.”

“Only three months ago, the RBNZ was still emphasising that “it was prepared to lower the OCR if required”. Now, not only has the outlook for interest rates flipped in the other direction, but the RBNZ has already delivered its first tightening of sorts. The comment that reaching its targets would require “considerable time and patience” has also been dropped. In all, the accompanying media release was more hawkish than we expected from the RBNZ, whereby it explicitly described its latest move as a reduction of monetary stimulus, and noting that the level of stimulus could be reduced now to minimise the risk of overshooting its inflation and employment mandates.”

“The RBNZ left the commentary about the timing of OCR hikes vague. This is not unusual. Typically, when the RBNZ loosens or tightens monetary policy, it often focuses on explaining its latest decision rather than signalling what might come afterwards. But considering how drastically the RBNZ has changed its tone, the swap market is now pricing in 19bps of tightening in the next three months and 38bps of tightening in the next six months.”