September 21, 2020
By Praveen Menon
WELLINGTON (Reuters) – New Zealand’s central bank is likely to keep interest rates steady at record lows and hold off on further stimulus this week, even as the economy faces a deep recession, on signs the fallout from coronavirus pandemic could be milder than expected.
The Reserve Bank of New Zealand (RBNZ) will keep the official cash rate (OCR) unchanged at 0.25% on Wednesday for a fourth consecutive meeting, according to all 11 economists polled by Reuters. The economists said they expected rates to remain steady for the rest of the year.
New Zealand fell into its deepest economic recession on record in the second quarter, data showed last week, but the 12.2% quarter-on-quarter contraction was smaller than the 12.8% decline forecast in a Reuters poll.
Meanwhile, Treasury forecasts showed a milder short-term shock from the coronavirus outbreak, while house prices have defied forecasts and stayed buoyant.
“The recent period of stronger data means the RBNZ won’t see any need to loosen monetary policy further at this stage,” said Westpac Chief Economist Dominick Stephens.
About 97% of the market expects no change in rates this week, but have priced in a move close to zero by April next year, according to Eikon.
In the Reuters poll, three of the 11 economists expected a rate cut in the first quarter of next year and seven expected rates to enter negative territory in Q2 2021.
The RBNZ has held rates steady since cutting them by 75 basis points at an emergency meeting in March.
But in August the central bank expanded its bond-buying programme to NZ$100 billion ($67.7 billion) and struck a dovish tone.
It reiterated its commitment to holding rates until March next year, and said it would consider negative rates and low-cost funding to banks if further stimulus was needed.
On Wednesday, the markets will focus on whether there’s any change to this forward guidance, ANZ Bank said in a note.
“For the short end, any weakening of the commitment to keep the OCR unchanged until March would certainly cause a flurry of excitement, but this is not our expectation,” said ANZ Chief Economist Sharon Zollner.
(Editing by Ana Nicolaci da Costa)