The Reserve Bank (RBNZ) is leaving monetary policy settings unchanged, as expected.
The Official Cash Rate (OCR) will remain at 0.25%. The cap on the Large-Scale Asset Purchase (LSAP) programme will remain at $100 billion, and the Funding for Lending Programme will continue to operate under existing conditions. Both programmes will continue to run through to June 2022.
The Monetary Policy Committee repeated what it said in its February Monetary Policy Statement - that it’s prepared to cut the OCR if required.
It reiterated it was taking a “least regrets” approach and would keep monetary conditions loose (IE interest rates low and the supply of money high) until it could be confident its inflation and employment targets could be “sustainably” met.
It stressed, getting to this point would “necessitate considerable time and patience”.
The Committee said it would look though current inflation pressures, with these largely being driven by temporary factors, including supply chain disruptions and high oil prices.
It expected the Government’s new housing policies to dampen house price growth. But it said it would take time for the impact of these on inflation and employment to be seen.
The Committee also maintained the net effect of the trans-Tasman bubble was yet to be seen.
"Overall, the Committee judged the medium-term outlook for growth as broadly similar to the scenario presented in the February Statement," it said.
The Committee recognised the LSAP, which has seen the RBNZ buy $51 billion of mostly New Zealand Government Bonds to date, would be constrained by the Government issuing less debt than planned when the programme was launched last year.
"Staff noted that reduced government bond issuance was placing less upward pressure on New Zealand government bond yields and providing less scope for LSAP purchases," it said.
“Members also noted that the proceeds from the upcoming maturity of the May 2021 New Zealand Government Bond would be reinvested over time as part of the weekly purchases.”
While bond yields globally have been rising a bit, as markets bet on higher inflation, the Committee said “any increase in bank lending rates would be premature given the current economic outlook”.
The New Zealand dollar initially fell against the US on the release of the review, but then rebounded.
The Committee again clarified the Government changing its monetary policy remit to require it to assess the impacts of its policy on house prices, doesn't change its objectives to target inflation and employment.
It stood its ground, saying it believed "ongoing stimulatory monetary policy is necessary to achieve these objectives over the medium term".
The RBNZ said it would have more to say on the Government's directive for it to factor house prices into the way it regulates banks when it releases its Financial Stability Report on May 5.
Finance Minister Grant Robertson last month asked the RBNZ for advice on it potentially applying debt-to-income restrictions on residential property investors and restricting the use of and interest-only mortgage lending.
Here is a copy of the Monetary Policy Review in full:
The Monetary Policy Committee agreed to maintain the current stimulatory level of monetary settings in order to meet its consumer price inflation and employment objectives. The Committee will keep the Official Cash Rate (OCR) at 0.25 percent, and the Large Scale Asset Purchase and Funding for Lending programmes unchanged.
The global economic outlook has continued to improve since the February Monetary Policy Statement. Ongoing fiscal and monetary stimulus are continuing to underpin the global recovery in economic activity. However, economic uncertainty remains elevated and divergences in economic growth both within and between countries are significant. New Zealand’s commodity export prices continue to benefit from robust global demand.
Economic activity in New Zealand slowed over the summer months following the earlier rebound in domestic spending. Short-term data continues to be highly variable as a result of the economic impacts of COVID-19.
The planned trans-Tasman travel arrangements should support incomes and employment in the tourism sector both in New Zealand and Australia. However, the net impact on overall domestic spending will be determined by the two-way nature of this travel. The extent of the dampening effect of the Government’s new housing policies on house price growth, and hence consumer price inflation and employment, will also take time to be observed.
Overall, our medium-term outlook for growth remains similar to the scenario presented in the February Statement. This outlook remains highly uncertain, determined in large part by both health-related restrictions, and business and consumer confidence.
Some temporary factors are leading to specific near-term price pressures. These factors include disruptions to global supply chains and higher oil prices. However, the Committee agreed that medium-term inflation and employment would likely remain below its remit targets in the absence of prolonged monetary stimulus.
The Committee agreed to maintain its current stimulatory monetary settings until it is confident that consumer price inflation will be sustained at the 2 percent per annum target midpoint, and that employment is at or above its maximum sustainable level. Meeting these requirements will necessitate considerable time and patience. The Committee agreed that it was prepared to lower the OCR if required
Summary Record of Meeting
The Monetary Policy Committee noted how economic conditions had evolved since the February Statement. The global growth outlook has improved, partly due to the commitment to ongoing monetary and fiscal stimulus and the progression of vaccination programmes. However, the recovery in growth is uneven across countries. Persistent economic uncertainty continues due to the spread and mutation of COVID-19.
Economic activity in New Zealand slowed over the summer months following the earlier rebound in domestic activity. December quarter GDP was weaker than expected and more recent indicators suggest that momentum has reduced. Some members noted that supply chain disruptions could potentially constrain domestic activity in the near term. In addition, business credit growth and investment remains subdued.
The planned trans-Tasman travel arrangements should support incomes and employment in the tourism sector both in New Zealand and Australia. However, the net impact on overall spending will be determined by the two-way nature of this travel. Robust export commodity prices have supported New Zealand’s terms of trade. The Government’s new housing policies are likely to dampen house price growth, but the extent of the effect and implications for consumer price inflation, and employment will take time to be observed. Overall, the Committee judged the medium-term outlook for growth as broadly similar to the scenario presented in the February Statement.
As expected in the February Statement, the Committee noted evidence that near-term price increases are likely, and these will see headline inflation exceed 2 percent for a period. However, members consider the impact on inflation from supply chain disruptions and oil price increases to be temporary.
Inflation expectations remain at or below the 2 percent target midpoint. Members noted a risk that higher headline inflation, if sustained, may feed into higher inflationary expectations. The Committee agreed that the interaction between price and wage inflation and inflation expectations will be important in determining the sustainability of inflation pressures in the medium term.
Members agreed that employment is below its maximum sustainable level and expect employment to increase gradually over the medium term. The Committee noted that employment outcomes are uneven across the economy with some firms having difficulty finding skilled labour as a result of border restrictions and skills mismatches.
Following the February Monetary Policy Statement, the Minister of Finance issued a new remit for the Monetary Policy Committee and issued the Bank a direction specifically relating to its financial stability mandate.
Monetary Policy Committee members noted the Committee’s new remit and emphasised it was important to clarify that the objectives of monetary policy in the new remit remain unchanged: to maintain a stable general level of prices over the medium term and support maximum sustainable employment. The Committee believe that ongoing stimulatory monetary policy is necessary to achieve these objectives over the medium term.
The new remit requires the Committee to outline the impact of its decisions on the Government’s policy relating to sustainable house prices. The Committee’s initial assessment is that stimulatory monetary policy is playing a role in lifting house prices. Other factors are also influencing house prices including: the impact of low global interest rates on all asset prices, constrained housing supply and infrastructure, land use regulations, tax policies and the broader recovery in aggregate demand.
The Committee also discussed the broader distributional impacts of lower interest rates. Members noted that lower interest rates make it easier to service mortgages, while also putting upward pressure on house prices, making the required deposit to buy a house larger. Stimulatory monetary policy also supports employment and incomes over the medium term, which improves the ability to save for a deposit or service a mortgage and broader economic wellbeing.
As distinct from the Monetary Policy Committee’s remit, the Bank has been directed under its financial stability mandate to have regard to the Government’s policy of supporting more sustainable house prices, including by dampening investor demand for existing housing stock, which would improve affordability for first-home buyers. Staff presented and discussed a preliminary suite of indicators assessing house price sustainability with the Committee. Preliminary assessments on the Bank’s response to the Ministerial direction will be included in the May Financial Stability Report.
Overall, the Committee agreed that the risks to the economic outlook remain balanced, conditional on ongoing stimulatory fiscal and monetary policies. The Committee agreed that, in line with its least regrets framework, it would not remove monetary stimulus until it had confidence that it is sustainably achieving the consumer price inflation and employment objectives. Given that uncertainty remains elevated, gaining this confidence is expected to take considerable time and patience. While doing so, the Committee agreed to look through any temporary factors driving prices as required by the remit, and noted that there will be periods during which inflation will be above the 2 percent target per annum midpoint.
The Committee discussed the effectiveness of monetary policy settings since the February Statement. The Committee agreed to continue with the Large Scale Asset Purchase (LSAP) programme. Staff noted that reduced government bond issuance was placing less upward pressure on New Zealand government bond yields and providing less scope for LSAP purchases. Members also noted that the proceeds from the upcoming maturity of the May 2021 New Zealand Government Bond would be reinvested over time as part of the weekly purchases. The Committee affirmed that weekly changes in the LSAP do not represent a change in monetary policy stance. Staff would continue to adjust weekly bond purchases as appropriate, taking into account market functioning.
Staff advice noted that average bank funding costs continue to decline and remain near historic lows. Members noted that while wholesale interest rates had been volatile, retail interest rates were broadly unchanged. As a result of stable retail interest rates, household cashflow positions are continuing to improve as fixed mortgages reprice at lower interest rates. The Committee agreed that any increase in bank lending rates would be premature given the current economic outlook.
The Committee agreed to maintain its current stimulatory monetary settings until it is confident that consumer price inflation will be sustained at the 2 percent per annum target midpoint, and that employment is at or above its maximum sustainable level. The Committee expects a prolonged period of time to pass before these conditions are met.
The Committee agreed that it was prepared to lower the Official Cash Rate (OCR) if required.
On Wednesday 14 April, the Committee reached a consensus to:
-
hold the OCR at 0.25 percent;
-
maintain the existing LSAP programme of a maximum of $100 billion by June 2022; and
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maintain the existing Funding for Lending Programme (FLP) conditions.
Attendees:
Reserve Bank staff: Adrian Orr, Geoff Bascand, Christian Hawkesby, Yuong Ha
External: Bob Buckle, Peter Harris, Caroline Saunders
Observer: Caralee McLiesh
Secretary: Nicholas Mulligan
61 Comments
The Official Cash Rate (OCR) will remain at 0.25%. The cap on the Large-Scale Asset Purchase (LSAP) programme will remain at $100 billion, and the Funding for Lending Programme will continue to operate under existing conditions.
Both programmes will continue to run through to June 2022.
"You finally really did it! You maniacs! You blew it up!"
- Charlton Heston, Planet of the Central Bankers
Dalio is confident that cryptos will be banned from the US.
I don't see how fiat currency can have legitimacy going forward if crypto is allowed to spread. Hence why I agree with Dalio that central banks/state goverments will be forced to outlaw crypto like gold ownership was banned in the last known period that resembles our current circumstances.
How could a central bank carry out the money printing it is intending on doing, while more people move away from using the currency they are printing to keep the current fiat/financial system alive. The two ideas/concepts will be a train smash at some point (perhaps the next few years?) and the state's hand will be forced to ban the crypto.
Or if free people and crypto 'wins', I have no idea what our financial system will look like. It will be borderless and central banks and fiat currency meaningless. Power to the people...It's a big beat to gamble against the central bank (as people always remind me when I talk to them).
Dalio is confident that cryptos will be banned from the US.
Don't be so sure about that. The laws are already in place for banks to custody crypto in the U.S. Nevertheless, assuming that it did, you would really need a global ban on crypto to really snuff it out. And shutting down the internet is not really an option.
Ok but think this through, similar to the last known period where this type of financial situation has occured (1920's/1930's).
What happened to the relationship between gold (aka crypto now) and the currency?
At what point do central banks step in and say unregulated crypto ownership is outlawed, or we're fixing the price of cryptos at a set level. If will have to happen otherwise the fiat currency countries are operating under become meaningless and the financial system fails.
U.S. Lawmakers Are Realizing They Can’t Ban Bitcoin -
I think the challenge that we all face with this is some of these cryptocurrencies — they’re literally just a piece of open-source software,” said Allaire. “There’s nothing else. It exists on the internet, it’s open-source software, anyone can implement it, it runs wherever the internet runs, and these have a monetary policy where these assets are algorithmically generated . . . That is a challenge that every government in the world now faces — that money, digital money, will move frictionlessly everywhere in the world at the speed of the internet.”
https://www.forbes.com/sites/ktorpey/2019/07/30/us-lawmakers-are-realiz…
They're a value exchange mechanism.
But in light of central banks' recent behaviour, do cryptocurrencies really lack any substance compared to fiat currencies being manipulated by our reserve banks?
The RBNZ seems to be demonstrating that fiat is a great mechanism for taking wealth from some and giving it to others, but not the best way for individuals to preserve their own wealth or plan for the future.
(Disclosure: I don't own crypto)
Bitcoin has more substance than fiat currencies. It has a set emission schedule and supply cap, and it takes an actual investment in time, capital and electricity to create Bitcoin. It is not just created out of thin air like what the FED does just adding an extra 0 to a bank balance.
IO Mark Moss did a youtube a week or two ago naming a whole bunch of US lawmakers who are openly pro bitcoin. It would be a heck of a purge if the rest of them did want to have a go at killing cryptos. Also, with it's spread into corporates, it seems pretty insidious now.
In, what was it, 1933 when the US govt banned private ownership of gold, at least they paid for it (then of course we know what they did once they got the gold to grab their windfall). Do you think they might ban crypto but offer to pay for it in USD to soften the blow? (here, hold this tea towel on your head while I wind up my batting arms)
I think allowing crypto currency to gain popularity while relying on continuous money printing to keep the economy afloat are mutually exclusive concepts. Perhaps this is where/how the revolt from present day fiat begins in disgust at what central banks have done/are intending to do. But I just don’t see how central banks can allow crypto popularity to spread without risk losing legitimacy of their role or the currency they back. There will need to be a tipping point in one direction or the other that could change the future of finance/economics.
Yes, I have thought along those lines, and my view is that they have a vaguely formed plan to pump fiat hard to win as much time as they can, while preparing the rollout of their CBDC. Then they'll incentivize everyone to transfer their fiat into CBDC and market it as the "solution". Of course they are still broke, but now they have a new shiny crypto thing to debase whenever they like (it's not BTC) and so IT'S STILL PARTY TIME, DUDES!
This delays the confidence tipping point for a while, but it must still come.
I also think that CBDC will increase the pace of Bitcoin adoption, as more people get used to using a digital version of money. But then they come to realise that the government can now track every transaction, tax it at time of transfer, and monitor what you do so they will jsut buy Bitcoin where they cant stop you. CBDC will be the worst thing to happen to the world, easily leading to a more Orwellian future.
Sure it can help: we will give student this interest rate, direct payments to individuals, tailorable policies to different demographics, but then you will also have things like an expiry date on your money. Spend it by this date or it will disappear...
I'm with Dalio - if the central banks of the major currencies don't own/regulate the cyrptos, I can see them (not sure how quickly) banning the trading of goods and services using crypto as a store of wealth.
You may say its borderless - but so was gold at the point of Bretton Woods. If crypto's do take hold and there's a major scramble from fiat currency (which there is a reasonable chance), central banks will either fix the price of the crypto or ban ownership completely.
Otherwise they lose control of the financial system. Why would anyone bother holding fiat currency they are destroying? And how would the central bank of the global power at the time control the quantity and value of the major store of wealth used to trade goods and services.
Otherwise they lose control of the financial system. Why would anyone bother holding fiat currency they are destroying?
You're raising good points and I'm not necessarily arguing against you. I find it hard to believe there won't be a full-scale revolution if the govts and central banks start dictating what, where, and how people can spend and save. It's happening to some extent now.
'I find it hard to believe there won't be a full-scale revolution if the govts and central banks start dictating what, where, and how people can spend and save'
And yet that is exactly their mandate and always has been...has it not? If I'm a farmer - can I pay my taxes in corn or beef? Or a baker, in bread? No, you have to spend and save and pay taxes in fiat and always have done (in modern history).
How long before we see the equivalent of the Gold Reserve Act 1934 if people decide fiat its worthless and make a rush to cryptos?
You can already pay your taxes using Bitcoin in several states in the US including Wyoming.
That is the exact problem with gold. Because it is not practical to use on a day to day basis as a medium of exchange due to its lack of divisibility or transportability, it ended up centralised in bank vaults with paper currency issued against it.
This centralisation allowed the government to make those gold confiscation laws, as when people turned up to the bank to take their gold out, the FBI just pulled them up and confiscated it.
Bitcoin totally negates this as you hold your own keys and no one can stop you moving it as you see fit.
Well you can print fiat....to buy Bitcoin!
Its called a speculative attack and was penned by Pierre Rochard in 2014. Microstrategy has already implemented this buy borrowing over $1b at a 0% interest rate to buy Bitcoin with.
https://nakamotoinstitute.org/mempool/speculative-attack/
So all any nation state has to do is print its fiat currency to use to purchase Bitcoin. Yes it will destroy its currency by extracting all the wealth from its citizens (ie inflation) but then it will have heaps of Bitcoin that is going up in value on the world stage. Then it just transitions its currency to a new system, either Bitcoin or something else.
Ok - see the comments above regarding the start of a revolution. If what you say above happens there would be blood in the streets and a complete collapse of the economy.
The more likely outcome is central banks banning cryptos and/or price fixing them. Otherwise it won't be able to control inflation and exchange rates.
"I find it hard to believe there won't be a full-scale revolution if the govts and central banks start dictating what, where, and how people can spend and save. It's happening to some extent now."
That is the very reason crypto exists - it is the revolution. The old "The medium is the message" could not be more appropriate - perhaps more appropriate here than when it first coined, no less.
The US government can't try to ban Bitcoin now, it is on the balance sheets of several large companies and several senators own it themselves.
https://www.forbes.com/sites/ktorpey/2019/07/30/us-lawmakers-are-realiz…
And this article is a direct response to Dalio's comments:
https://bitcoinist.com/five-reasons-why-governments-wont-ban-bitcoin-an…
And this is a nice article why India should buy Bitcoin instead of banning it:
https://www.medianama.com/2021/02/223-india-bitcoin-balajis-srinivasan/
You're comments are likely exactly what gold investors were saying before the Gold Reserve Act 1934.
https://www.investopedia.com/terms/g/gold-reserve-act-1934.asp
Then boomfa....illegal to hold/trade as without control of that store of wealth, it become impossible to 'control' inflation and currency exchange rates. And if central banks can't do that, wars start.
Not your Keys, Not your Coins. The number 1 rule of Bitcoin.
Gold is centralised in bank vaults, ie very easy to seize and control. Bitcoin is decentralised and held by individuals, ie very hard/impossible to confiscate.
You mean like Nigeria trying to ban the use of Bitcoin...
https://news.bitcoin.com/nigeria-to-pay-1-2-cents-for-each-dollar-remit…
People will take what ever risk is necessary to save their purchasing power if the current system they are using is devaluing their time and savings.
Wouldn't you use what ever you could to be able to eat or purchase goods in the future if your saving were being devalued at 750% per year like Venezuala currently? No government law is going to stop that happening.
'People will take what ever risk is necessary to save their purchasing power if the current system they are using is devaluing their time and savings.'
That is exactly my point (see history of gold in the 1930's) and why I think central banks will move to ban cryptos. They can't continue to devalue fiat if people stop using it. And if they can't continue to devalue it, the world economy fails.
There they go again. All this nutty talk about growth. I wish they'd pick up a physics textbook.
And..."Members agreed that employment is below its maximum sustainable level"....
I can't get staff so I decided to walk down the road to other businesses to see if anyone knew anyone who wanted a job. They all said they were looking too. Desperate in fact.
Surely they have overjuiced things and rates should go up.
Hi brisket, don't mind at all.
Auckland. Coatings, resins and adhesives manufacturing.
The problems aren't just staff related either. Raw materials on allocation from overseas manufacturers, can't export out.
Our whole industry is scrambling to reformulate. It's a right shambles.
I wouldn’t assume that businesses aren’t doing that or that it’s a solution. There is a definite labour shortage and post-COVID some staff are preferring job security than higher wages. This means it’s hard to pinch staff although a telco just took one of the girls at the professional services firm we outsource work to for an additional $60k pa.
Timmyboy: It seems it's not so different from the mid-1960s through 1970s when young people (baby boomers) walking down the street had to be careful not to run into company recruiters which seemed to be everywhere. If you walked down Queen Street it always paid to stick to the outside of the pavement to avoid them. Nothing has changed.
We were loath to be employed as there were no university fees to worry about although we could always get a holiday job at the meatworks to provide enough cash throughout the rest of the year to keep ourselves in booze for the weekend parties or sessions at the pub.
If you were walking down a street of factories sometimes recruiters from their personnel departments would race out of the building waving an employment contract at you whereupon you had to break into a run to avoid them.
During the highschool holidays I would get offered holiday jobs from school friends' fathers of a job at the fathers' workplace. I was quite useless at these jobs but they paid well although I was never invited back. Once I worked in a foundry where I wasn't strong enough to fill the moulds with wet sand so they gave me a cushy job in the yard sorting out different pieces of metal at my own pace.
After a couple of years at university still not knowing what career I wanted to pursue I decided to give accounting a go. So I bought a teach yourself book-keeping book from Whitcombe and Tombs ( now Whitcoulls ) and spent a week or so ploughing through the basics. I then applied for an accounting job advertised in the Herald. With no experience I thought my chances were zilch. But I did get the job and was straightaway called the 'assistant accountant' at a quite large import and manufacturing company in Penrose supplying the dairy industry. I stayed there for about a year before boredom got the better of me.
What a great story from another era!
Back in the UK my Dad (who left school, at 15) rose to find himself running 8 car franchise garages by 28, working 6.5 frantic days a week. Along the way sometime (in the army?) he'd done a Metropolitan College paper on bookkeeping and accounts - he could add.
Anyhoo, we emigrated to NZ (which at that time was almost literally like transferring to the colonies) and he thought employers would ooh and ahh over his meteoric and youthful rise to management. The first interviewer heard about the beancounting paper, dwelled on it for the rest of the interview, then quickly hired him as a sales manager.
Rewarding investment that reduces pollution and carbon release and penalising that that increases it is arguably one of the most important areas of focus that central banks will need to get involved in in the future. It's not really their job, but their job currently rewards destruction of the environment and biosphere and in that regard is ultimately incompatible with long-term financial stability.
On Wednesday 14 April, the Committee reached a consensus to:
- hold the OCR at 0.25 percent;
- maintain the existing LSAP programme of a maximum of $100 billion by June 2022; and
- maintain the existing Funding for Lending Programme (FLP) conditions.
Potentially banks could end up owning government and RMBS assets greater than outstanding business loan assets, which have already contracted 4.1% to date - source.
Peter Schiff (love him or hate him...I'm undecided) is more confident that the US has overcooked their money printing than he was about his prediction the US was going to tank in 2008 (which he was right). He see's high inflation then a complete rock/hard place for Fed and Treasury on taxes/deficiets/interest rates.
Yes, Schiff has been saying for a while "How could this extreme level of money creation NOT leak into the real economy." And here we are.
I like his ranty style - funny.
The unfolding financial disaster in California is a pretty good representation of the brewing end game:
https://www.ntu.org/foundation/detail/california-wealth-and-exit-tax-wo….
1 : Today Mr erOrr was dead drop silent on DTI and Interest Only Loan, may be today was not the day to speak on it but am sure when he does speak on 5th May - his excuse will be wait and watch as below was mentioned last time and also now, so is preparing his excuse.
"It expected the Government’s new housing policies to dampen house price growth. But it said it would take time for the impact of these on inflation and employment to be seen.
The Committee also maintained the net effect of the trans-Tasman bubble was yet to be seen"
========================================
2 : "It reiterated it was taking a “least regrets” approach .................."
Another highlight, when it comes to supporting the ponzi, is taking the 'least regret approach BUT when it comes to controlling the ponzi it follows ' Wait and Watch" approach.
Does it not exposes them ???
If least regret approach is for overall economy and do not want average Kiwi and FHB to be collateral damage ( already been) than why not take counter measure by stopping Interest Only Loan....why wait and watch attitute.......
It is and has been very evident that Interest Only Loan, not only gives undue advantage to so called investors over FHB but also a right step in curbing speculative activity, more than tax change ( though even that was good but that may affect all investors but stopping IO loan will target future speculators by squeezing easy and cheap money).
Can hold me if am wrong as Mr Orr is bound to come out with wait and watch attitude as if rampant rise in last few months, not enough to act as both Politicians and bureaucrats and reserve bank though may anything but in reality has no interest to control the ponzi.
If you are familiar with Samuel Beckett's play "Waiting for Godot", then you understand that they can keep us waiting forever.
When they make up the rules, their power is total. Every time I listen to Orr (or any other central banker), I'm convinced that whatever they say is also totally made up.
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