ANZ economists now predict the Reserve Bank will increase the quantitative easing programme to $90 billion by August if not sooner

ANZ economists now predict the Reserve Bank will increase the quantitative easing programme to $90 billion by August if not sooner

Put your hands to your ears or you may be deafened. Less than a week after the Reserve Bank again brought out its formidable cash-spraying 'bazooka', economists at the country's largest bank now pick the RBNZ will be ready to launch yet another salvo by August if not earlier.

Last week the RBNZ increased the size of the quantitative easing programme (QE) from $33 billion to $60 billion.

But already, now ANZ economists say the programme will need to be increased to $90 billion.

The RBNZ launched its bond buying programme less than two months ago, originally with a targeted size of $30 billion. If the ANZ economists are right, this means the amount targeted to be bought by the RBNZ will have tripled, potentially by August.

In their Weekly Focus publication, the ANZ economists say they believe the RBNZ will increase the QE programme "in light of the giant government bond issuance programme unveiled at the Budget".

"We are now forecasting a further scaling-up of QE at the August MPS to a $90 billion limit. This will help to absorb the bigger-than-expected programme of Government bond issuance to fund all that spending. The RBNZ has received an indemnity from the Government to increase QE as outstanding bonds grow, so the hurdle has been lowered, but an expansion will still need sign-off from the Monetary Policy Committee. We expect this will happen at the August MPS, if not earlier," the economists say.

They say the increased QE will be in order to "keep the yield curve low and flat, in order to keep debt-servicing costs low and provide further assistance to the economic recovery". 

In the short term, the RBNZ may choose to front-load bond purchases with the current $60 billion limit, if the upward pressure on yields seen after the Budget persists, the economists say.

The central bank can also conduct purchases to assist with market functioning and soothe market concerns.

"But by August, we expect the asset purchase programme to be expanded to $90 billion. This would allow the RBNZ even greater flexibility to absorb issuance and keep the yield curve sustainably low and flat in order to support the economy."

The economists note that the RBNZ has expressed a strong willingness to do what it can, "and we think they will remain cognisant of downside risks", as they were in the Monetary Policy Statement issued last week.

"We expect the expansion to happen at the August MPS, if not earlier. 

"A Monetary Policy Statement release is a logical time to do it, alongside the release of economic forecasts, and also when the Monetary Policy Committee (MPC) is  gathered.

"However, we have no doubt that the RBNZ would not hesitate to expand the programme earlier should the economic outlook deteriorate or financial conditions tighten materially. An [Official Cash Rate] OCR Review or even inter-meeting move is possible, especially if bond markets become dysfunctional.

"Such a change in policy stance now simply requires sign off from the MPC, since the RBNZ is now indemnified by the Government to purchase up to 50% of outstanding nominal NZGBs and 30% of outstanding inflation-linked NZGBs. This cap is likely to have been considered the portion beyond which RBNZ purchases would start to distort the market."

The economists say that beyond QE, the RBNZ is keeping its options firmly open should even more stimulus be required.

"One of its options is purchasing foreign assets (presumably US Treasury bonds), which would lower the exchange rate. The exchange rate channel appears to be a favoured method for transmitting stimulus, so we expect this would be the next cab off the rank after increasing and expanding the QE programme further. Typically, the NZD plummets like a stone in times of global woe, since New Zealand as a small, open commodity exporter is seen as very exposed to the slowdown. But this time round, it’s far from clear that we are going to be worse off than anyone else, and so the exchange rate has remained quite robust." 

They note that the RBNZ also left open the possibility of taking the OCR negative, but cemented expectations that it would not be this year, with very clear forward guidance reiterating that the OCR would remain unchanged at 0.25% until at least March 2021.

"The OCR forecast stopped there, unusually, reflecting that the RBNZ wanted to leave open the option of negative rates but was not willing to commit to it at this stage. 

"We think this is wise: negative rates are a risky proposition but keeping open the threat of them will help dampen short interest rates in the meantime, maximising monetary stimulus. Market pricing has quickly factored in a small chance of cuts. There are about 15bps of cuts priced by the end of this year, and about 28bps in April 2021. We can’t rule out negative rates next year, but they are not our central expectation at this stage." 

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52 Comments

15
up

Bye bye NZD

Hello Bitcoin

11
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With massive $ printing and without any tangible investment in infrastructure to absorb the $ and to boost productivity, I foresee another round of soar in property prices.

12
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Yawn

16
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Is it so implausible? I’m sat here with savings thinking wtf do the numbers really mean? Far better to buy something I can touch, not have taken away from me, and earn an income off. Holding cash is truly scary right now.

I'm not even worrying about saving anymore. I have a credit card, and potentially a mortgage top up facility available for a rainy day.

50% of my mortgage comes up for refinance in a couple of months, i'm going to portion part of that as floating and come pay day will throw every dollar I have left over from the previous month at it.

Look at offsetting a chunk of the mortgage instead, have it netted off the outstanding balance every day rather than end of month.

Not really I can go out and spend all my cash but you cannot go out and suddenly clear all your debt. All those people up to their eyeballs in debt right now will be shitting their pants. You had better hang onto your jobs because the bank will me knocking on your door when the wage subsidy ends.The government cannot continue to just print cash and hand it out to everyone forever, its got to end. This is your opportunity to reduce your debt by selling your house and downsize before the arse falls out of the housing market. With unemployment, reduced wages and hours, no rich foreign buyers, no immigration the houses priced over $1.2 million are going to be hit hard. Cash is King.

you are right Cash is King even if the currency devalues you will at least have some flexibility when the Banks block your credit cards

Ex-Expat... I don't get it, you might be able to touch an investment property but not for free. Legal fees, rates, insurance, maintenance and no capital gains in sight, possibly a loss? Plus you money is tied up in the property. Opportunity lost. Cash doesn't cost you anything, the return is modest but there will be no inflation for the next few years and no property value increases, so cash wins surely? At least for now?

I think the wondering is really "How fast can the RBNZ destroy the value of savings?"

yep...5% TermDp with 2.5% inflation = 2.5% return. 2.5% TD with 0% inflation = 2.5% return. Not much change in return from 5 years ago for the short to medium and 1/2 the tax taken out! Actually might come out ahead. yeh, yeh, depends on inflation.

If that’s the case many will be very disappointed because a lot of folks are anticipating for some property discounts! 15-20%?
Blame the internet, people are becoming too “smart” with easy access of information, everything is so short lived even a recession...

If investors start buying up, Jacinda will tax the hell out of them. CGT to start with.

yep..guarantee GCT after next election..brace yourself for the great payback on govt. debt and beneficiary bonus's... OR...We just need a trump in NZ. That way we could just go bankrupt and walk from the debt. Then I could move bookoo bucks from the USA with an exchange rate at 30c-40c, for property that might be valued 20% less??? Just trying to think ahead :)

Smiths City Finance and most of its stores (will be sold) to Polar Capital, a 100% New Zealand-owned company.... around 75% of our 465 employees retaining jobs.

So that another ~120 jobs gone.....

This pandemic has forced many households to think differently like how we work, educate our kids and to handle financial stress during the lockdown period. This will also change our whole consumption pattern what we used to have before this pandemic strikes. If we behaves differently and saves more money as a buffer for future means, more jobs will be lost as layoffs trigger in hospitality, retail and tourism sectors in coming months.This will greatly affects our money circulation and less demand to our goods and exports due to less demand from overseas. The real estate BOSSES and AGENTS still fail to accept the drastic change in HUMAN BEHAVIOUR (as always showing examples of previous downturns and rise eventually after that). So one should accept this fate, as we face a grim and challenging environment ATM which includes our PROPERTY PRICE.

Two months of less work but still paid by government subsidy will ABSOLUTELY NOT change any human behaviour.

Possibly true, but if the USA flatten the CCP/PLA that will certainly change human behaviour and make the world a much happier and healthier place to live in.

Good morning, General Ripper from "Dr Strangelove".

It is great to meet you. Do you have the red button for NZ?

Hi Xingmowang, you must be as old as me because that film came out in 1964 - the same year China exploded its first atom bomb and Mao Zedong said "China Will Take A Giant Stride Forward"which led to the Cultural Revolution.

I am sure my birth years is way later than yours.

I just love watching classic movies, and read old books.

"12 angry men", "Network", "Being there" etc...

Being There.. so you're not a philistine, that's one of the absolute classics.

10
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I haven't suffered any reduction in pay (yet) and my behaviour has already changed. I won't be spending if I don't have to. That rainy day fund? I'm now calling it a war chest.

In our case the rainy day fund is now the tropical cyclone fund.. And nailed down hard.

Ditto. Plans to replace TV, cars, etc all out the window. Cash is king for the foreseeable. Will be selling down where possible. Different cashflow scenarios for refinancing and breaking mortgages if needed are always on hand if I decide I need them, along with different redundancy options for my partner and I. I booked a weekend away in February before this blew up - the mindset seems so foreign to me now. There's going to many many people my age who will aggressively retrench back to how we used to be when we were saving for house deposits - no takeaway coffee, no lunches, no holidays etc. It will save money but it will also come at a price.

Keeping my overdarft that's for sure. But I'm also spending the excess capital gains from my house sale. Good for me, good for the economy.

Indeed...problem is, the RBNZ seems to think the way to stimulate spending is to devalue money and force more of it into asset prices...That'll just mean that everyone else will spend less.

what can go wrong..Dow up 900 points today..why? ONLY 2.5million more unemployed in US last week bringing total to ONLY 33 million. Retail sales down ONLY 16.4%...should bounce up next week with ONLY 100,000 dead...buy, buy ,buy...all is rosy.

Sadly but not surprisingly I think the vast majority of consumers will continue to consume. Stories from friends and colleagues confirm you just can't keep people from the temptation of shopping for meaningless items.

I know I should be used to it by now, but it still seems a strange way to go (scratching his head). I imagine the idea from here is to never balance the books, just keep on spending & the house prices going up with inflation reducing it over time.They teach some funny things at universities these days. You can't avoid bust forever.

10
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Agreed. It also destroys the wealth of all retired people. The pension and the savings from their life's become worthless via inflation, all because of society today inability deal with its addiction to debt. In some ways its amazing that Winston is allowing this to happen to his core constituents.

Disgusting indeed. All to perpetuate the moral rot of trying to enrich the few at the expense of hardworking and hard-saving folk.

Was it pushed on us or did we ask for it? (Do you blame the drug pusher or the user for drugs in society)

Have you seen the polls? WP has zero leverage right now.

Time for him to start spending his Pension on the Grand kids and go fishing

Politicians are continuing to spend the reserves that Pensioners spent years accumulating.

I am expecting the RB to come out and announce $140b of QE, since the banks have asked for $90b. They seem to be wanting to one-up each other at the moment.

Hey future people! Here's a massive bill! Rejoice!

Lower the OCR for crying out loud!

CPI inflation is going to be an unwelcome kicking for people who have lost their jobs (or are about to lose jobs) or are on reduced incomes. Thought you had six months of savings set aside or happy about that hard earned pay raise at work? Well RBNZ will "take care" of that.

Great wealth transfers begins. If you own non cash assets it will inflate to obscene levels, if you own cash and draws a salary, you'll become much poorer. Don't look to the beehive to save you, almost everyone of your favourite 'representatives' owns a house, have investments in properties and shares. The NZ middle class is wiped, there will only be the rich and the poor categories now.

all sorts of tax will make sure some $$ transfer back.

12
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Wellington based professional public servants have no idea what they're doing here. They've mostly never had real business experience; they certainly won't have to cut back on their lifestyle during the Greater Depression; and 98% of the $60 billion will go to vanity projects that are completely unfit for purpose akin to Shane Jones' $billion regional development fund.

Suck it up NZ - we all get the government we deserve. A bit of austerity is going to be good for us. Time to take our medicine.

How will banks react if the OCR goes negative and they are sitting on losing claims against the RBNZ for past QE security sales to the RBNZ?

Good question. A good reason for the RBNZ to avoid negative rates. More Treasury bonds are needed to absorb excess reserves. Otherwise they will chase after other positive yield assets, leading to asset inflation, making the rich richer. Without a capital gains tax to boot.

How about bankers stop telling the reserve bank what it should do?

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