RBNZ: The dove losses a wing, the kiwi sees a leg higher – TDS

The Reserve Bank of New Zealand (RBNZ) left its interest rate unchanged and surprised with a relatively upbeat assessment. The Wellington-based institution also hinted that negative borrowing costs are off the table. Economists at TD Securities anticipated the RBNZ would deliver a less dovish statement today and that is what the RBNZ gave the market, sending NZD/USD 1% higher.

Key quotes

“The Bank kept the OCR at 0.25% as expected and the LSAP remains at NZD100 B. The Bank unveiled its Funding For Lending Program - it will begin operation from next month with the program maxed at NZD28 B.” “The Bank expects inflation and unemployment to remain below its remit for a prolonged period of time but there appeared no urgency to push the OCR into negative territory.” 

“The Board acknowledged data has proved more resilient than assumed. Further, key forecasts were lifted, making it harder to justify a pressing need for a negative OCR.”

“The RBNZ's plan to reintroduce Loan to Valuation ratios from 1st Mar'21 is the first sign for needing to balance further rate cuts with increased financial stability risks.”

“We have refrained from joining the negative OCR chorus and today's statement justifies our stance. Other forecasters are now scaling back negative OCR calls.”