For years, the billionaires' favorite bug out destination of New Zealand remained an island of calm in a world of insanity, monetary and otherwise, sporting not only the world's most pristine natural environment but never having done QE or experimented with negative rates. Alas, last week's emergency rate cut from 1.00% to 0.25% telegraphed that at least the monetary stability is ending, and as we summarized "Kiwi QE coming (say that fast 5 times)."
And, just as it warned, moments ago on Monday morning New Zealand time, the Monetary Policy Committee of the RBNZ made history when it made another emergency announcement, declaring it too would join the rest of the world in implementing QE, i.e., a Large Scale Asset Purchase program of New Zealand government bonds. Spoecifically, the RBNZ will "purchase up to $30 billion of New Zealand government bonds, across a range of maturities, in the secondary market over the next 12 months", and the program "aims to provide further support to the economy, build confidence, and keep interest rates on government bonds low."
From the RBNZ's press release:
The negative economic implications of the coronavirus outbreak have continued to intensify. The Committee agreed that further monetary stimulus is needed to meet its inflation and employment objectives.
Globally, the number of people infected with the virus has increased rapidly and measures to contain the outbreak have become more restrictive. Global trade and travel, and business and consumer spending have been curtailed significantly.
The severity of the impacts on the New Zealand economy has increased. Weaker global activity is affecting the economy through a range of channels, not just reduced trade. Domestic measures to contain the outbreak of the virus are also reducing economic activity. Employment and inflation are expected to fall relative to their targets in the near term.
In addition, financial conditions have tightened unnecessarily over the past week, reducing the impact of the low OCR on achieving the MPC’s mandate. Heightened risk aversion has caused a rise in interest rates on long-term New Zealand government bonds and the cost of bank funding.
The Committee has decided to implement a LSAP programme of New Zealand government bonds. The programme will purchase up to $30 billion of New Zealand government bonds, across a range of maturities, in the secondary market over the next 12 months. The programme aims to provide further support to the economy, build confidence, and keep interest rates on government bonds low.
The Committee will monitor the effectiveness of the programme and make adjustments and additions if needed. The low OCR, lower long-term interest rates, and the fiscal stimulus recently announced together provide considerable support to the economy through this challenging period.
And just like that, the melodiously sounding Kiwi QE has arrived. The news pushed the NZDUSD slightly lower to 0.568, however with the bulk of the drop taking place last week, when kiwi was trading around 0.60, traders were largely anticipating today's decision, and if anything the added boost may help push the plunging pair higher.