RBNZ rogers sleeping RBA

Via the RBNZ this morning:

The Official Cash Rate (OCR) is 0.25 percent, reduced from 1.0 percent, and will remain at this level for at least the next 12 months.

The negative economic implications of the COVID-19 virus continue to rise warranting further monetary stimulus.

Since the outbreak of the virus, global trade, travel, and business and consumer spending have been curtailed significantly. Increasingly, governments internationally have imposed a variety of restraints on people movement within and across national borders in order to mitigate the virus transmission.

Financial market pricing has responded to these events with declining global equity prices and increased interest rate spreads on traditionally riskier asset classes.

The negative impact on the New Zealand economy is, and will continue to be, significant. Demand for New Zealand’s goods and services will be constrained, as will domestic production. Spending and investment will be subdued for an extended period while the responses to the COVID-19 virus evolve.

Several factors will continue to assist and support economic activity in New Zealand.

New Zealand’s financial system remains sound and our major financial institutions are well capitalised and liquid. The Reserve Bank is also ensuring that the banking system continues to function normally.

The Government is operating an expansionary fiscal policy and has imminent intentions to increase its support with a fiscal package to provide both targeted and broad-based economic stimulus.

The New Zealand dollar exchange rate has also depreciated against our trading partners acting as a partial buffer for export earnings.

And, the Monetary Policy Committee agreed to provide further support with the OCR now at 0.25 percent. The Committee agreed unanimously to keep the OCR at this level for at least 12 months.

The Committee also agreed that should further stimulus be required, a Large Scale Asset Purchase programme of New Zealand government bonds would be preferable to further OCR reductions.

Also from Bloomie:

Israel’s central bank will begin purchasing government bonds for the first time since 2009 to smooth volatility and boost liquidity, the latest emergency step in the face of the coronavirus outbreak.

It will also offer funding to financial institutions via repurchase transactions, officials announced Sunday morning. The Bank of Israel said in a statement it will buy bonds “in the necessary quantities,” without specifying a target.

With interest rates already just above all-time lows, the Bank of Israel is unleashing stimulus after the government announced a partial shutdown that includes all non-essential businesses. Israel has 200 positive cases of the coronavirus and no deaths.

The RBNZ should have announced that QE starts now, but still a much better effort than Martin Place. ZZZZZZZzzzzzzzzzzzzzz….

The global economy is shutting down. It is so severe that sovereign bonds have dislocated and all credit is frozen.

But the Australian central bank that has made a virtue out of doing nothing and arriving too late so it must defend its brand no matter the costs.

David Llewellyn-Smith
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Comments

  1. China PlateMEMBER

    “…and will remain at this level for at least the next 12 months.”

    Yeah right

        • Tell me – what do you think will happen in a society when supplies of everything are drastically running out and easy money is being pumped into the economy.

          People need to realise that this is no longer a corporate economy based around the crazy responses of TARP, QE, Sovereign Bonds of 2008 – we are back to the basics of a non-financial economy – goods and services supply and demand.

          Hate to say this but everyone in the US after the last round of failed repo and QE totally failed have called an equity crisis and are now saying inflation is coming.

          Trotting out the same tired responses to the 2008 GFC to Covid-19 just does not cut the mustard.

          ..

          Edit : Collateral – not equity.

          • Collateral liquidation coming? A fall in asset prices and a rise in the price of consumer necessities?
            Didn’t we hear that was coming back in 2008? Yet, here we are. And it’s probably right this time.

          • In advanced economies, printing money doesn’t cause inflation. It causes asset prices to rise.

          • Depends what you do with the printed money.
            give everyone $50,000 cash and watch inflation go ballistic.
            Feed that money to investors and watch asset prices rise.

      • Peachy home loan rates will be above 5% from 3% in next 3 months
        Funding costs are rising
        Out of cycle increases

        • You may be the latter-day Damian Boey!

          It would be fun if this did happen, but it’s extremely unlikely.

        • I am excited to see whether your dire predictions come true or whether you have just been correct by predicting 15 of the next recession.
          People adapt as do institutions. To think the response will be static is naive.

          • Olaf
            You have to be kidding mate
            The whole global financial system is going to collapse in next 6 weeks or so
            Recession we wish
            10 year depression worse than 1930s

  2. GunnamattaMEMBER

    You’ve got to laugh. Off the top of my head there isnt a central bank in the world which is slower moving than the RBA, and cannot be relied upon to make a dogs breakfast of monetary policy, every time a decision is made.

    They have been hanging their hats on 28 years without a recession – every bit as much as Australian politics – and that thumping great housing bubble they have floated for 15 years is now about to come down around their ears.

    Australia needs (to put it mildly) to revisit its monetary policy determination and action processes.

    • I’m not as smart as you guys but there’s one thing that I really don’t understand, so maybe someone can help me.
      You all rag on the RBA for being slow yet almost in the same breath you carry on about our big 4/5 banks being just little puppets completely dependent on the RBA. So how does this work
      Surely if the RBA wants our banks to stand on their own two feet then the RBA should only intervene under the most dire of circumstances, for the rest of the time the banks should be left alone to find their funding and finance their customers requirements. As far as I can see you can’t have it both ways.
      Too much RBA intervention just creates a market where our private banks expect RBA intervention, if you ask me , over the longer term, that outcome wouldn’t be doing anyone any favours. I can’t see a situation where anyone benefits from the RBA’s hand resting too heavily on the Economic rudder.

      • What you say would be correct, if the world was sensible and if things that should happen, did happen.

        In reality at this point any attempt to ensure the big 4 banks stand on their own two feet will ensure they collapse in a matter of weeks, and even our blind and paralysed RBA knows this would be A Bad Thing, so at this point the bitter nettle of reality must be grasped and they need to do Whatever It Takes.

        Unfortunately their ingrained habits of doing far too little, far too late seem to be unassailable so that’s what we’re getting.

        • Maybe I didn’t express myself properly.
          What I’m basically asking is, Why do I keep reading comments to the effect that the RBA should be Australia’s first line of economic/monetary defense when in reality we want them sitting in the backfield with fresh legs to mount a quick and decisive move as our last line of defense.
          As I see it it’s a bit like a soccer where the mid field does heavy work load but the defensive and offensive players try to keep themselves fresh for that quick burst the effort that really makes the difference between a goal and a close call. As far as I can see the RBA never plays an offensive role, so its purpose in the game is very clear.

          • DDirt I think your meaning was very clear. I agree – what you say is how it OUGHT TO be.

            It isnt like that, because we have debauched every sound economic and financial principle in the name of creating and maintaining ultra high house prices and setting up an economy where everything is financialised and flogged off to insider interests.

            So the banks don’t take hard decisions because they prefer to shut their eyes, compete for market share, pay themselves big bonuses, and rely on the government to bail them out if they get it wrong. Up until now they have made an absoute fortune for decades doing it.

            The government won’t take hard decisions because those same big corporations donate a lot of money to both parties, plus voters mostly all want the endless boom to go on forever in share prices and house prices. No one wants to know if its propped up by illusion so don’t take any hard decisions and don’t risk lifting the rug to reveal the ugly truth below. Up until now those voters – especially Boomers – have made an absoute fortune for decades doing it.

            Media won’t call it out because they are on the teat, enamoured of their ”access” to politicians and totally reliant on the revenue streams from real estate advertising. They aren’t making a fortune because old media is a dying business but they are still alive and kicking like hell.

            And the RBA is part of it. Part of the system, enamoured of their own reputation and ‘success’, happy to inflate the housing bubble, go soft on APRA, predict roses when thorns are blindingly obvious, and incapable of taking tough decisions which would also mean admitting they have been absolutely central to the sh!tshow we are now reaping.

            That’s the short answer. (The long anwer is called nine years of reading Macrobusiness and the book Game of Mates – google it 🙂 ).

            And yeah you might say it sounds a bit conspiratorial – except look out the window.
            Hope this helps.

          • Ahm not sure what to say.
            For me this is has nothing to do with the virtue of the RBA’s actions but rather it is simply a comment on the manner in which the RBA should function, if their mandate is to be the last line of defense.
            You seem to agree that this is or rather should be the RBA’s role but then, as if we suddenly jumped into some sort of alternate universe, you go on to tell me what intervention actions the RBA should have taken to exercise some sort of continuous control over the banks (ARPA etc) Sure sounds to me like you’re asking defense to play mid-field, but in a virtuous way (that fulfills my alternate objectives) which is very different from those sinful types that want the RBA to play mid field for the furtherance of their own narrow interests.

  3. Also at least I probably won’t cop another year of abuse
    Telling me I’m mental
    Half the country will be mental
    I might start feeling normal

    • Doubt it. The panic will subside when the punters realise that the vast majority won’t be very unwell. At the moment It’s like that movie The Birds where everyone thinks some malign, invisible force is about wipeout the population. It isn’t.
      It will strain the health system but the average person won’t notice much apart from the self-inflicted.

      • Olaf
        It’s not the health
        COVID is just cold flu
        Not hugely diff than bad head cold flu and worse in the weak etc

        It’s the global economy that is going to deleverage
        You are about to witness economics carnage like never seen since WW2
        Collapse of global banks
        Airline collapses
        Small business broke
        Unemployment 20+% in Australia
        House price collapse in Aust 20/30% in next 6 months, 50% + this time next year
        That’s before the food shortages etc
        Honestly this is not an argument it’s a fact now
        I don’t need to sound as mental anymore because I don’t need to scream it out
        I’m very sorry if you have a view otherwise
        You will be very disappointed