The Reserve Bank of New Zealand (RBNZ) is responsible for formulating monetary policy, directed towards the economic objectives of achieving and maintaining stability in the general level of prices over the medium term and supporting maximum sustainable employment.
The employment mandate is a recent addition to the bank's economic objectives, as it was enacted in 2018 within the Reserve Bank of New Zealand (Monetary Policy) Amendment Act.
As of June 2020, the bank also changed the name of the Official Cash Rate (OCR) announcements to Monetary Policy Review (MPR), to reflect the fact that other tools such as forward guidance and asset purchases are deployed along with interest rates in order to achieve its mandate.
RECENT MONETARY POLICY DECISIONS
As COVID-19 ripped through the world, the RBNZ followed its counterparts with actions to combat the economic fallout.
Back in March 2020, in an emergency meeting, the RBNZ initially slashed interest rates by 75 basis points (to a record low of 0.25%), before a couple of weeks later announcing a massive government bond buying program of up to NZ$30 billion over 12 months across a range of maturities.
Since these announcements the RBNZ has expanded its Large-Scale Asset Purchases (LSAP) target to its current value of up to NZ$100 billion.
In its previous meeting on May 26th, it made no changes to interest rates or the asset purchases program, but projected higher rates during the second half of 2022, sending the New Zealand Dollar higher.
In its latest policy decision of July 14th, the bank maintained the Official Cash Rate (OCR) at 0.25%, but announced the end of additional asset purchases under the Large Scale Asset Purchase (LSAP) program by the 23rd of July 2021, causing the domestic currency to jump.
As such, the RBNZ is at the forefront of the normalization of the ultra-loose monetary policies enacted in the wake of the COVID-19 pandemic, along with the Bank of Canada (BoC) who has been tapering its quantitative easing for a while now.
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and…