RBNZ: Negative interest rates by April 2021

Economists at ANZ BAnk now expect the Reserve Bank of New Zealand (RBNZ) to cut the OCR 50bp at the April OCR Review. Furthermore, they see a further increase in the large-scale asset purchase (LSAP) programme in November as likely, perhaps to $120 billion. This policy is set to be a a real headwind for the kiwi.

Key quotes

“We are now forecasting the RBNZ to cut the OCR by 50bp to -0.25% in April 2021. Beyond that, further easing is possible, but there are constraints on the OCR going below -0.75%.” “The RBNZ has ruled out changing the OCR before March 2021, but expressed a preference for a package of a lower OCR and a bank ‘funding for lending’ programme, should they conclude that further stimulus is required at that point. We think they will.” “The LSAP programme could easily be extended to $120 billion in November, with the timeframe extended to December 2022. At this stage, this seems like the most likely outcome. That figure could rise to almost $140 billion if the RBNZ were prepared to buy 70% of outstandings, or if more fiscal support is needed and the government bond market grows more quickly.”