RBNZ Governor Adrian Orr says more detail on unconventional monetary policy thinking coming soon, but we are not in a recession as he highlights the RBNZ's 'ability to use different levers in concert with each other' including the OCR, LVRs & bank capital

RBNZ Governor Adrian Orr says more detail on unconventional monetary policy thinking coming soon, but we are not in a recession as he highlights the RBNZ's 'ability to use different levers in concert with each other' including the OCR, LVRs & bank capital
Adrian Orr by Jacky Carpenter.

Governor Adrian Orr says the Reserve Bank will soon publish the principles behind its thinking on unconventional monetary policy tools, but says the Reserve Bank expects the economy to brighten over 2020.

Orr's comments come in a speech delivered to the Federal Reserve Bank of San Francisco. They follow the Reserve Bank leaving the Official Cash Rate (OCR) unchanged at its record low of 1% on Wednesday, at its last scheduled OCR review of 2019. 

"It is possible that some of the uncertainty in the current economic cycle is due to a question of whether central banks have enough policy space to respond to a future recession; or even if we can continue to service our mandates if inflation remains low. Although this scenario is far from our central projection in New Zealand, it is much better for us to prepare for unconventional monetary policy while the sun is shining," Orr said.

"In the near future, we will publish the principles that guide our thinking on unconventional tools, and we are currently working our way through operational considerations of the different options. Having these tools ready, should we need them, will mean we can continue to contribute to a stable economic environment should the OCR reach zero. By getting this work done now and publishing our analysis, we can provide more certainty to the public over our ability to respond to any future downturns." 

The Reserve Bank last year detailed five options available to it should future economic conditions require the OCR be reduced to zero. They are moving the OCR into negative territory, buying domestic and foreign government bonds, purchasing interest rate swaps, and providing long-term lending facilities for banks.

Despite laying the groundwork for the potential use of unconventional monetary policy tools, Orr emphasised that the economic outlook is not all doom and gloom.

"When we talk about unconventional monetary policy and fighting slowdowns, it is of course important to take a step back and look through the gloom: we are not in a recession, and we expect the economy to recover over 2020. It is possible that uncertainty could clear up in the coming year if there is closure on the topics of Brexit and trade tensions. We are readying ourselves if we need to act further," he said.

Orr also noted the Reserve Bank's broad mandate and different policy levers designed to address specific issues.

"The OCR is primarily used for monetary policy and bank capital requirements and loan-to-value ratio restrictions (LVRs) are primarily for macro-prudential policy. One of the benefits of managing these different policies under one roof is the ability to use the different levers in concert with each other to manage side-effects and spillovers. We will be reviewing our LVRs and bank capital requirements in the context of the low interest rate world we are going to be living in for some time," Orr said.

The Reserve Bank releases its latest Financial Stability Report on November 27, and its final decisions in a review of banks' regulatory capital requirements on December 5.

"Monetary policy is one tool. It needs to be seen in the context of all the Reserve Bank’s tools as well as the wider economic levers which have seen less in recent times. In these uncertain times we must continue to communicate and offer forward guidance as to future path of policy. Yes, there is uncertainty. Yes, it is affecting us. No, monetary policy cannot directly resolve this issue. But we can offset its effects and empower others to fuel economic activity that will benefit us in both the short and long-term. There has never been a greater time to make use of accommodative monetary policy for investing in productive assets," Orr said.

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"There has never been a greater time to make use of accommodative monetary policy for investing in productive assets"

Hopefully the RBNZ's emphasis is on "productive assets" not the swapping of existing housing assets between speculators.

Amen to that.
Banks make they're living out of lending to customers. They will always pick the easiest and least risky alternative. Wouldn't we all?! If they are stopped from lending to one segment of the 'business' community, they WILL lend to another. If they don't, they'll go out of business.
All the mechanisms are there for Adrian Orr to use ( regardless of what Hawkesby suggested yesterday) and every now and then we get a hint that "Yes, he gets it!". What he does with the LVRs will tell us if he really does or not, because Heaven help us if he ever has to use one of the 5 alternatives outlined above.

"They will always pick the easiest and least risky alternative" and housing is a total gimmee for them. Of all the asset classes out there, housing is the one which any government will not do anything to bring to heel. Lots of votes amongst the house owning class.

But a small point to note, that house owning class is deminishing quite rapidly.

Turd polishing and we will document what we can do if something dose go wrong to calm the masses so they start spending.

Perhaps DTI.

And one for me as well! Thanks for that. (from your link)

"Since the 2008 recession, central banks have been printing money frantically in an attempt to create inflation and compel the rich to do something useful with their money, and have been largely unsuccessful in both endeavours. We now live in a different economic universe than we did before the crash. Falling unemployment no longer drives up wages. Printing money does not cause inflation. Yet the language of public debate and the wisdom conveyed in economic textbooks, remain almost entirely unchanged.

"Orr emphasised that the economic outlook is not all doom and gloom"

Orr obviously isn't paying close enough attention to this site's comment section.

I hope he has some new ideas as the old ones arent working,lots of people resist change and feel unable to adapt,hence the irrational fear of the greens.so he has a difficult task to overcome their metathesiophobia.(just found that word today)

Fear of the Greens is quite rational. This is not to say that climate action isn't supported generally, but its the associated hard left activism, idealogues and pointless personnel in the Greens that scares people off.

The Govern-Orr is not yet aware that some people are not quite as stupid as they seem.

Some people can work around problems, some people make them, some people are aware that monetary policy is a world wide scam.

The simple fact is that debt is balanced between right and wrong and when one gets out of step with that, then it actually becomes a Crime., when things go wrong, especially in a big way.

That Bwankers and others fiddling the books since the GFC have never been prosecuted, but promoted is the biggest scam in the entire history of Mankind. Except they aint....man kind. They is self effacing.

That China is booming and busting to get their hands in the till, is a tell. Nursing ones money is one thing, relying on it another.

That is all for today folks, keep borrowing, keep writing it off and on. zero and ones amount up to trillions...do they not?.

WELL it will be about bloody time they tell us what hell is going on , right now we are being treated like mushrooms .......... kept in the dark and fed BS

Either they know and understand what is going on and can articulate it to us


They dont have a clue whats going on , and to use a phrase once used by Donald Rumsfeld ....... they are up against ..........unknown - unknowns .

The Fed chief Jerome Powell says nothing wrong with the economy in the US and the strong performance will continue.
RBNZ Governor says there are uncertainties and he will soon tell us how he will deal with them.
If America is not sneezing will we catch cold ?
But increased capital and reserves is always good for the banking system to be strong.
And Orr defying the expectations of the banks here is a good precedence since if banks want something then it is bad for the customers.

Unlike other NZ Reserve Bank Governors; who have been nothing more than puppets and month pieces, Adrian Orr has a few clues and a track record at the NZ Superfund to prove it.

A good start will be increased bank capital holding requirements. The big four BS indicating this will lead to increased interest rates is just that. As there are other lenders available, they have to meet the market, and if they don't their business will decline.

Maybe its what the big four are considering a reduced market anyway, as an attempt to exit the ponzi scheme they created? I hear all the female ANZ board members are starting to grow their hair long again, in anticipation of the smiling assassins departure.

Unconventional Monetary Policy is a euphimism for "futile interventions that obviously point to the need for larger fiscal stimulus".
Here's an idea. A job guarantee that spends on people at the bottom to tackle long term unemployment, underemployment, precarious employment and mal employment (like fast food that just creates masive health problems for the state to deal with).

Key was years ahead with his own unconventional monetary policy, his flag referendum pumped millions into the economy, shall we hold another bigger more expensive referendum on another pointless topic, that out to stimulate things for a while...