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RBNZ Announces Expansion & Extension of Bond Purchases


12 August 2020

The Reserve Bank of New Zealand announced the Fed interest rate decision until August 12. The Federal Reserve announced that it would maintain its benchmark interest rate unchanged at 0.25%, in line with market expectations. The Reserve Bank of New Zealand said that by the first quarter of 2021, the probability of a rate cut is close to zero. The only “action” of the Reserve Bank of New Zealand is to expand the upper limit of asset purchases from the previous 60 billion NZD to 100 billion NZD. The bond purchase plan will continue until June 2022. In addition, the Reserve Bank of New Zealand also stated that it is preparing to provide additional stimulus to the economy when necessary, including the purchase of foreign assets.

Regarding the economic outlook, the Reserve Bank of New Zealand released more pessimistic remarks. Yesterday, the New Zealand government raised the outbreak alert level in the area to level 3 due to a batch of new crown cases of unknown origin in Auckland, until midnight local time on Friday; the level outside Auckland was raised to level 2, which also ends at midnight local time on Friday. In view of this, the Reserve Bank of New Zealand believes that the current New Zealand economy “still has downside risks” and expects the economy to shrink by 14.3% in the second quarter of 2020.

The annual rate of inflation will also fall to 0.3%. The Fed’s pessimistic expectations are not groundless. With up to 13 billion New Zealand dollars in wage subsidy program will end next month; coupled with the government’s measures to close the border, has severely hit its main source of income-international tourism and education sector, New Zealand employment and economic conditions are not optimistic.

Finally, September 19 is the New Zealand election date. Some analysts predict that the impact of the new crown epidemic on the New Zealand labor market will be maximized after the election. ANZ Bank predicts that the unemployment rate in New Zealand may rise to 10.6% in the fourth quarter and remain at 9.8% in the middle of 2021. After the September general election, if the unemployment rate soars, the upside of the New Zealand dollar will be limited.

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