Reserve Bank of New Zealand to hold rates, consider more easing

The Reserve Bank of New Zealand is expected to hold rates steady at its Wednesday policy meeting amid signs of economic improvement. The central bank is also likely to release its plans for future policy action as it arms the country against the impact of the pandemic.

Most economists predict New Zealand’s official cash rate to stay at 0.25% this year. Few expect it will drop into negative territory in 2021.

Investors were shocked when RBNZ slashed interest rates by 75 basis points in March as the coronavirus spread in the country. However, this was left unchanged for five months as the health crisis was quickly controlled and lockdowns were lifted.

Markets expect the central bank to stick to a gentler stance by expanding quantitative easing beyond NZ$60 billion and keep alternative monetary policy tools.

The central bank also announced that it would readily release alternative monetary policy tools in its statement in August. Any hint that RBNZ is considering negative rates would put kiwi under pressure.

Business confidence also improved as the government’s firm and quick response to the coronavirus kept it out of the community, granting businesses to reopen.

Still, New Zealand’s tourism industry is affected as the country’s borders remain shut. A possible second wave of coronavirus cases is also feared. Meanwhile, the government expects the jobless rate to surge in the coming months.