NZD: attractive price profile for extended support
Although little mention was made of the prospect of a phase-down, it was pointed out that the Bank is unlikely to be able to complete all of the NZ $ 100 billion of purchases under its NZD program. quantitative easing by June 2022. The RBNZ has cited declining government bond issuance as a main reason, although the $ 100 billion target appears elusive regardless of the issuance. So far, only NZ $ 50 billion in government bonds have been purchased under the program.
We think the next step for the RBNZ will be to start talking about tapering
We think the next step for the RBNZ will be to start talking about reduction. Regardless of whether it will ultimately be a monetary policy decision, we are inclined to think that the bank will continue to stress that this is due to a reduction in bond issuance, with the aim avoid unwanted consequences (such as a louder NZD) of overly hawkish sound. . In the 2020 budget (as shown in the graph above), the Treasury revised its bond issuance forecasts downwards for 2023 and 2024, having already reduced its forecasts for the period 2022-2025 during the biannual review in December.
At this point, we might start to hear discussions about ending the asset purchase program earlier and / or downsizing it. Any tapering signal should not be a major surprise to the markets after the hawkish bias is put in place via the forward guidance tool, but it can still continue to support rate expectations.
NZD should reap the benefits of an improved pricing profile
From a currency perspective, we suspect that the NZD surge seen following the meeting could be the start of a larger cycle of appreciation. With RBNZ now joining companies like the Bank of Canada and Norges Bank of Norway in the hawkish G10 group of central banks, the NZD should reap the benefits of an improved rate profile.