As expected, the RBNZ left all monetary policy measures unchanged at the April meeting. While acknowledging the dampening effects of the government’s housing policy, policymakers need more time to assess the impacts on the real economy. Meanwhile, the members appear more comfortable with the current level of New Zealand dollar. This explains the rise of kiwi after the meeting.
On the economic developments, the central bank noted that “the global economic outlook has continued to improve”. It, however, reiterated that “economic uncertainty remains elevated and divergences in economic growth both within and between countries are significant”. Domestically, policymakers acknowledged that economic activities “slowed over the summer months following the earlier rebound in domestic spending” and that “short-term data continues to be highly variable as a result of the economic impacts of COVID-19”. Concerning the Trans-Tasman travel bubble, the central bank expects that it should support the tourism sector in both countries. It, however, added that “the net impact on overall domestic spending will be determined by the two-way nature of this travel”. The RBNZ suggested that the Government’s recent housing policy changes would have a “dampening effect” on house price growth. However, it takes time to observe how it would affect inflation and employment.
A surprising change in the policy statement is the removal of the language that the NZD has “offset” some of the support from higher export prices. New Zealand dollar has declined -5% against US dollar and -1% against Australian dollar. Removal of the language which had had been in place since August last year probably suggests that policymakers are less concerned about the exchange rate.
On the monetary policy, the OCR stays unchanged at 0.25%. On asset purchases, the LSAP program also stays at NZ$100B while the Funding-For-Lending program (FLP) remains in place. Concerning the reduced purchases in LSAP, the RBNZ explained that this was due to “reduced government bond issuance”. It affirmed that the “staff would continue to adjust weekly bond purchases as appropriate, taking into account market functioning”, and that “weekly changes in the LSAP do not represent a change in monetary policy stance”. The forward guidance remains intact. The central bank “agreed to maintain its current stimulatory monetary settings until it is confident that consumer price inflation will be sustained at the 2%per annum target midpoint, and that employment is at or above its maximum sustainable level. Meeting these requirements will necessitate considerable time and patience”.
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