The Reserve Bank of New Zealand held the OCR at 0.25 per cent in yesterday’s monetary policy review, but announced it is to end its quantitative easing programme almost a year earlier than expected.
“The Monetary Policy Committee agreed to reduce the current stimulatory level of monetary settings in order to meet its consumer price and employment objectives over the medium-term,” the bank said.
Additional asset purchases under the RBNZ’s Large Scale Asset Purchase (LSAP) programme will now end by 23 July 2021.
Under the programme, the bank has bought back NZ$53.5 billion of central and local government bonds.
The programme was originally capped at $60 billion with an end date of May this year. But in August 2020, the RBNZ expanded the cap to $100 billion and pushed out the expected end date to June 2022. Yesterday’s decision effectively reversed that move, in the face of economic conditions that the bank describes as “persistently stronger than anticipated”.
The Funding for Lending Programme (FLP) will continue to be available to participants, with the bank saying “this tool provides a useful means of transmitting monetary policy given the pricing moves in line with the prevailing Official Cash Rate”.
Shortly before the announcement, ASB, New Zealand’s second largest lender, announced rate increases on both mortgage lending and term deposits, although it left its 1.79 per cent variable ‘Back my Build’ rate for new build buyers, funded by the FLP, unchanged.
Following the announcement, economists from all four major banks forecast the RBNZ will hike the OCR in August, rather than waiting until November as previously forecast.