RBNZ bank funding programme imminent: reaction

The Reserve Bank has hinted its programme to lend directly to retail banks could be ready by the end of the year, as it takes a more dovish tone on the economy.

Adrian Orr

The RBNZ updated the market with its latest Monetary Policy Review today, and noted its Funding For Lending Programme (FLP) "would be ready before the end of this calendar year". 

The programme is designed to boost the economy and make it cheaper for banks to borrow, in turn pushing down interest rates for retail borrowers. 

The FLP could arrive before negative rates, as the central bank stuck to guidance the OCR would remain on hold until March.

Kiwibank economist Jarrod Kerr would support a decision to kick-start the FLP by the end of the year.

"We have continually noted that it would be better to focus on the FLP now, and consider NIRP [negative interest rates policy] later. The bank FLP is the next best tool in the shed. And the FLP has the added advantage of timing. The RBNZ has committed to doing nothing with the OCR until March 2021. The FLP could be started in November, to get the ball rolling."

Westpac's Dominick Stephens said the RBNZ statement was a "hint" the programme could start early. He noted the central bank had not acknowledged better-than-expected economic data, and said the RBNZ had taken a "very pessimistic stance".

Donal Curtin of Economics NZ believes the bank funding programme should have been introduced sooner.

Curtin said: "I'd note that the Reserve Bank of Australia has already got a term lending programme in place which at their September meeting was increased to make a total of A$200 billion available. Put that in NZ terms, and we should be looking at around NZ$30 billion, or more even, given that our June quarter GDP fall was bigger than theirs. I hope 'before the end of this calendar year' turns out to be 'well before the end of this calendar year'."

The central bank once again highlighted the possibility of negative interest rates, and said a negative OCR, and the purchase of foreign assets, would be considered in the months to come. 

Today's RBNZ statement was unusual in noting rising house prices. The buoyant property market had risen "in contrast to the Reserve Bank’s baseline scenario which had assumed a decline".

The Reserve Bank said the rise could be a positive for the economy, which "has historically been closely correlated with changes in household wealth, and that a stronger housing market may indicate a stronger recovery in consumer spending and residential construction if sustained".

However, members of the RBNZ Monetary Policy Committee noted low population growth and rising unemployment could "constrain further house price increases". 

Most Read

Get TMM delivered to your inbox each week

Sign Up