News

QE the preferred tool for lower rates: economists

Economists say the Reserve Bank views its LSAP programme as the best way of pushing down interest rates, despite talk of a negative OCR in recent months. 

Wednesday, June 24th 2020

Nick Tuffley

The Reserve Bank kept the official cash rate at a record low of 0.25% today, and once again signalled its Large Scale Asset Purchase programme (LSAP) would be its preferred way of lowering borrowing costs. 

The central bank said the LSAP programme could be increased, while it would also consider other tools, such as a lending facility for banks, and foreign asset purchases, as well as a lower OCR.

Economists believe the $60 billion LSAP quantitative easing programme could be increased further to push down mortgage rates.

"That has been our thinking all along," said Kiwibank chief economist Jarrod Kerr. "They haven't finished with LSAP yet, far from it. We think it could double to $120 billion, and we think we will get something towards that in August." 

Kerr argues a lending facility for banks "is probably the most effective" in pushing down interest rates: "It would have an immediate effect, and I think it would come in before a sensible discussion around negative rates, which I think would be a mistake."

ASB's Nick Tuffley said there was no shift from the RBNZ today as the results from its interventions so far were "reasonably encouraging".

Tuffley said the central bank was "yet to pull any particular tools out at this point", "but the direct lending to banks is another obvious step if the capacity for asset purchases was exhausted or they were losing their impact". 

Tuffley believes an expansion of LSAP is more likely "later this year, or early next year". 

Meanwhile, Westpac's Dominick Stephens said today's announcement was notable for its consistent message with previous statements. 

"They haven't changed anything, other than acknowledge the recent data was less bad than expected."

Stephens added: "Previously, the Reserve Bank had decided its tool of choice was LSAP, and it was its first port of call for delivering monetary stimulus."

While the central bank has signalled its preference to stick with LSAP as its main tool, some economists believe its interventions have been "insufficient" so far.

Michael Reddell said: "They continue to talk up the LSAP programme, even as effective monetary conditions, the exchange rate and real interest rates, have barely eased at all this year. Even as we've endured a severe adverse domestic and global economic shock and, as [the] MPC rightly notes, the risks are still to the downside."

Comments

No comments yet

Most Read

SBS FirstHome Combo 4.29
Unity First Home Buyer special 4.29
Co-operative Bank - First Home Special 4.85
China Construction Bank 4.85
ICBC 4.85
TSB Special 4.89
Kiwibank Special 4.89
ASB Bank 4.89
Westpac Special 4.89
BNZ - Std 4.89
AIA - Go Home Loans 4.89
Nelson Building Society 4.93
ICBC 4.95
SBS Bank Special 4.95
China Construction Bank 4.95
Wairarapa Building Society 4.95
TSB Special 4.95
ANZ Special 4.95
ASB Bank 4.95
Kainga Ora 4.95
Westpac Special 4.95
AIA - Go Home Loans 4.95
SBS Bank Special 5.39
Westpac Special 5.39
ICBC 5.39
Co-operative Bank - Owner Occ 5.59
BNZ - Std 5.59
BNZ - Classic 5.59
AIA - Go Home Loans 5.59
ASB Bank 5.59
Kainga Ora 5.69
Kiwibank Special 5.79
ANZ 5.79
SBS Construction lending for FHB 3.94
AIA - Back My Build 4.44
CFML 321 Loans 4.99
Co-operative Bank - Owner Occ 5.95
Co-operative Bank - Standard 5.95
Heartland Bank - Online 5.99
Pepper Money Prime 6.29
Kiwibank - Offset 6.35
Kiwibank 6.35
TSB Special 6.39
Kainga Ora 6.44

More Stories

Four decades of 6-7% yearly house price growth ending

Friday, March 21st 2025

Four decades of 6-7% yearly house price growth ending

New Zealander’s reliance on property capital gains in the mid-single digits is at an end.

[TMM Podcast] Yelsa serves up “marine reserve” of property buyers

Friday, January 31st 2025

[TMM Podcast] Yelsa serves up “marine reserve” of property buyers

It’s been years in the making and former real estate agent Mike Harvey is now coming to market with his platform matching buyers and sellers, an offering he says will be a gamechanger for the industry.

Leaving last year's stumbling housing market behind

Friday, January 17th 2025

Leaving last year's stumbling housing market behind

As interest rates ease and job losses climb, New Zealand’s housing market faces a mixed year of modest growth, with conflicting forces shaping the outlook for homebuyers and investors.

Don’t bet on house prices rising faster than incomes

Wednesday, January 15th 2025

Don’t bet on house prices rising faster than incomes

Former Reserve Bank Governor and National Party leader Don Brash says there are grounds for believing that house prices may finally have ended the three-decade period when they rose significantly faster than incomes.