Reserve Bank of New Zealand Preview: Forecast from seven major banks

The Reserve Bank of New Zealand (RBNZ) is scheduled to announce its Monetary Policy Statement on 11 November at 01:00 GMT and as we get closer to the release time, here are the forecast by the economists and researchers of seven major banks regarding the upcoming central bank's meeting. The RBNZ is likely to keep the Official Cash Rate (OCR) unchanged at a record low of 0.25% for the fifth straight month in November. However, the central bank is set to introduce a new stimulus tool in a Funding for Lending Programme (FLP). 

On Monday, the NZD/USD pair advanced to its highest level since March 2019 at 0.6856 before closing at 0.6817.

More: NZD/USD to continue surfing the tide of global news above 0.68 – ANZ

ANZ

“The focus will be the upcoming Funding for Lending (FLP) programme, including design details and deployment date. We expect the programme to have relatively few strings attached in order to facilitate take-up, and to be priced at or near the OCR. Our best guess is that the programme might be $30-50 B in size. We do not expect any changes to the OCR or the LSAP (QE) programme. The market will also be looking for further comments on the likelihood of a negative OCR and to see if the OCR forecast track is extended beyond the end of existing forward guidance (ie Q1 2021). We expect the RBNZ to continue to dodge extending the forecasts until the February MPS, as it is very likely to be misconstrued as either a firm commitment to or a ruling out of, a negative OCR. We expect the RBNZ to reaffirm its forward guidance that the OCR will not be lowered before mid-March. As regards to the economic forecasts and the tone of the document, there were strong hints in the Governor’s recent public comments that they will not be putting a great deal of weight on the more positive recent data flow, but rather remain firmly focused on the medium-term and the sub-par outlook for both inflation and employment. In our view, the odds of a negative OCR have reduced, and the implementation of the FLP could see a negative OCR implemented later or more gradually. Nonetheless, on balance we still think that a negative OCR is more likely than not, given the balance of risks.”

Westpac

“We expect MPS will be less dovish than markets expect. The key message will be that the RBNZ intends to keep interest rates low for a prolonged period, rather than pushing rates lower. We expect a Funding for Lending Programme (FLP) will be announced. It will be small and targeted at business lending. We now expect 25bps OCR cuts in April, May and August next year (previously one 75bps cut in April). As the FLP and negative OCR take effect, the pace of LSAP bond purchases will be gradually reduced in a switch of monetary tools. We expect no official change to the LSAP next week. Next year we expect the LSAP to be stretched to $100 B over three years (currently $100 B over two). Next year, we expect that the RBNZ will reintroduce LVR restrictions targeted at property investors.”

ING

“We believe the RBNZ will match the move by Reserve Bank of Australia and cut the cash rate from 0.25% to 0.10%. Our Australia-New Zealand watcher, Rob Carnell, sees scope for an even more aggressive move by the RBNZ.”

Standard Chartered

“We expect the RBNZ to keep the policy rate unchanged at 0.25%, in line with its forward guidance since March, but to deploy the funding-for-lending programme, offering low-cost, secured, long-term funding to banks. At the last meeting in September, the central bank clearly noted that alternative tools can be deployed independently and signalled that the funding-forlending programme may be deployed before end-2020. The rhetoric on negative rates will likely remain and the RBNZ may provide an update on banks’ readiness to implement negative rates; the central bank recently commented that negative rates are not a game of bluff and are a realistic option. Nevertheless, given the questionability of the effectiveness of negative rates, it seems that while the RBNZ prepares for it, the central bank may be reluctant to adopt it as it implements other tools and waits to assess the situation before making a decision; nevertheless, the risk of negative rates in 2021 remains.” 

TDS

“The NZ economy has held up better than RBNZ f/c's – Q3 u/e 5.3% well below 7% in the Aug MPS and house prices are booming, +10% YoY, vs RBNZ -7% YoY Aug MPS. As such, the statement is likely to be less dovish. Stronger economy -> less RBNZ issuance -> need to slow QE purchases cements RBNZ introducing a Funding for Lending Program (FLP), ~NZD10-15 B to take slack off QE.”

Citibank

“Citi analysts expect no change in cash target or LSAP program (bond purchases of NDZ100 B by June 2022) but Citi analysts expect RBNZ to remain dovish in its policy guidance as its main concern is still a deterioration in NZ labor market & the risk is RBNZ could follow RBA into cutting cash rate (by 25bp to zero). The center-piece of MPS though should be details on the new FLP as MPC had previously said that ‘a package of an FLP and a lower or negative OCR could provide an effective way to deliver additional monetary stimulus’ and that ‘members agreed that they preferred to launch an FLP before end of 2020’.”

UOB

“We think it is indeed looking more likely that the RBNZ will cut the OCR, buy we will only be revising our OCR forecasts after assessing information from the upcoming November meeting. At this juncture, the RBNZ looks likely to cut the OCR by 50bps at the 14 April 2021 meeting, alongside a FLP, pausing thereafter.”