WELLINGTON: New Zealand’s central bank is in no rush to tighten monetary policy, assistant governor Christian Hawkesby said as he sought to temper market expectations about sudden changes in interest rates.
“Markets are keen to get ahead of central banks but there will inevitably be false starts and that is why we are seeing some of the volatility in bond markets at the moment, ” Hawkesby told Reuters in an interview.
“Our approach is to continually remind markets that we are going to be patient, and we are in no hurry to remove stimulus, ” he said.
The Reserve Bank of New Zealand (RBNZ) kept rates unchanged last week and said it would maintain easy policy settings for a prolonged period.
New Zealand’s 10-year yields last week posted their largest weekly gain since mid-2013, while the New Zealand dollar spiked to a 3½ year high of US$0.7463 before unwinding to US$0.7265.
RBNZ cut interest rates by 75 basis points in March last year and introduced a NZ$100bil (US$72.64bil) Large Scale Asset Purchase (LSAP), or quantitative easing, programme to support an economy hit by coronavirus lockdowns.
Hawkesby said while LSAP gave the RBNZ the ability to influence the market, the programme has now been used extensively with the central bank holding about 40%-50% of government bonds.
“That means we have less head room in front of us in terms of the way that tool gets used, ” he added.
New Zealand has opened its economy faster than many others around the world, despite small outbreaks in Auckland, its biggest city.
But Hawkesby said New Zealand’s recovery has been uneven.
“There are pockets, regions and sectors that are still struggling, ” he said.
The government last week added house prices to RBNZ’s remit to help calm a red-hot property market.
The markets soared on the news, but economists said traders over-reacted.
RBNZ re-introduced loan-to-value restrictions on Monday to curb speculative investment.
However, Hawkesby said while LVR would reduce housing demand, it may not have a huge effect.
“The LVR is going to be a marginal influence on the housing market. We wouldn’t want to overstate their potential impact, ” Hawkesby said. ─ Reuters