RBNZ sticking with guidance on interest rates, senior official says

WELLINGTON (Reuters) - New Zealand’s central bank has not changed its guidance on keeping interest rates unchanged until March next year, but is hoping to be operationally ready to deploy negative rates by year end if they are needed, a senior official said on Thursday.

FILE PHOTO: Two people walk towards the entrance of the Reserve Bank of New Zealand located in the New Zealand capital city of Wellington, March 22, 2016. REUTERS/Rebecca Howard/File Photo/File Photo

The Reserve Bank of New Zealand (RBNZ) held the official cash rate (OCR) at 0.25% on Wednesday and appeared more optimistic about the economy, which led markets to pare chances of negative rates next year, sending the New Zealand dollar NZD=D3 soaring.

The bank had said in March that it would keep the OCR unchanged for 12 months and has repeated this guidance at every meeting since, Assistant Governor Christian Hawkesby said in an interview.

“We have not changed this guidance,” he said.

Hawkesby said the economy performed better than expected in August, but still required substantial stimulus.

“Less stimulus than August but still a substantial amount, more than what we had been providing,” he said, adding this was the reason RBNZ launched the funding-for-lending programme (FLP) for banks that would offer cheaper loans to lenders and thereby stimulate the economy.

The New Zealand dollar NZD=D3 rose to the highest since March 2019 on Wednesday following the announcement.

Hawkesby said the market reaction was to economists changing their call, not an explicit change in RBNZ communication.

“A number of economists had called the OCR to be negative next year. A number of them changed their call through the afternoon, and we feel the market reaction was driven from that as opposed to the message we were giving,” he said.

RBNZ remains on the same path it has been throughout this year, which maintains a negative OCR as one of the tools it can use, he said.

“We are working really hard to get operationally ready by the end of the year so that it can be a live choice if required,” he said.

New Zealand’s success in containing the community spread of COVID-19 has allowed the economy to bounce back faster than most other countries in the world.

The economy fell into its deepest recession on record in the second quarter.

Reporting by Praveen Menon; Editing by Sam Holmes