RBNZ Maintains its Interest Rate, Rolls Out New Lending Scheme

RBNZ Maintains its Interest Rate, Rolls Out New Lending Scheme
November 12, 2020

 

The Kiwi dollar surged against the greenback on Wednesday after the Reserve Bank of New Zealand boosted its monetary stimulus package while maintaining its interest rate to stir up the economy. The Monetary Policy Committee (MPC) also chose to start a “Funding for Lending Program (FLP)” next month to slash banks’ financing costs and trim interest rates. The New Zealand central bank also reaffirmed that interest rates would remain unchanged until March 2021. That guarantee and the latest FLP created a bullish view of the Kiwi dollar, taking the NZD/USD pair to 0.6903, the highest level since March 2019.

As anticipated, the Reserve Bank of New Zealand left the cash rate unchanged at 0.25% while reaffirming that the interest rates would not undergo any change until March 2021.

Furthermore, the Committee stated that it would continue with the current N$100 billion large-scale asset purchase (LSAP) program. Policymakers revealed that the country’s economic activity since the August policy meeting, has turned out to be more robust than anticipated earlier. Nevertheless, the COVID-19 jolt to the economy is huge and lasting, and employment and inflation will stay below the suspended targets for an extended period of time.

Governor Adrian Orr, in a media release, stated that the lending program to be rolled out in December would probably have a better impact than slashing interest rates (OCR) to 0.10%. The package size is forecast to be roughly N$28 billion ($19.31 billion) based on acceptance. Orr opined that banks would be interested in offering loans at cheap cost as their financing costs are about to decrease further because of the measures taken.

The MPC anticipates a continuous rise in unemployment as the economy aligns itself. Likewise, inflationary pressure is also forecast to stay at the lower end of the suspended target range for a considerable period of time. Overall, inflation forecasts remain gloomy.

The country plunged into its worst recession in the 2Q 2020, but economists believe that additional stimulus may not be necessary as the economy has reopened after ending the spread of coronavirus in the country. The Committee also revealed that the country’s banking set up is on course to be functionally ready for negative rates by the end of this year. The MPC acknowledged that it is ready to slash the interest rates to offer a fresh stimulus, if necessary.

Orr believes that it is “too early to tell” about the likelihood of negative interest rates. The governor also underlined that the central bank is ready to roll out another stimulus package as the jobless rate is forecast to increase from the current 5.3%, and inflation was predicted to stay below the target range.

In a post-meeting statement, RBNZ said, “The Committee agreed that monetary policy will need to remain stimulatory for a long time to meet the consumer price inflation and employment remit, and that it must remain prepared to provide additional support if necessary.”  

In December, the RBNZ will discuss the reintroduction of restrictions on the quantum of “high-risk lending,” which can be carried out by banks, against the backdrop of rising worries of a housing bubble.

Interestingly, the RBNZ upwardly revised its GDP growth forecast considerably to 13.4% for the final quarter of this year. The central bank also expects unemployment to hit a peak of 6.4% in June 2021, down from the 8.1% forecast earlier.

Regarding the probability of negative interest rates, Stephen Toplis, head of research at BNZ, said: “The Reserve Bank did keep open the option for the cash rate to go negative eventually but we think the overall stance…suggests it is now far less certain of the efficacy of heading in this direction.”

Despite the upward revision of GDP growth, the RBNZ still believes the economy faces considerable risk, as per Toplis. “The RBNZ still thinks the risks to the outlook are weighted to the downside, but they clearly recognize that the economy is evolving better than they had anticipated.”

The guarantee to hold interest rates steady until March 2021 is expected to keep the Kiwi dollar range-bound with a slight bullish bias against the greenback.

The price chart indicates that the NZD/USD pair is rising after testing support at 0.6490. The next resistance is anticipated only near 0.7390. Additionally, the currency pair is trading above its 50-day moving average, while the stochastics indicator is in the bullish region. Therefore, we are anticipating the currency pair to move up in the near-term.

NZD - technical analysis - 12th November 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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