ANZ says RBNZ is keeping all options open - could send NZD lower
Latest from ANZ in NZ on the Reserve Bank of New Zealand
The in brief version is (bolding mine):
- Although the RBNZ has been easing monetary policy, the NZD has ratcheted higher - leading to tighter monetary conditions than otherwise. While this partly reflects our relatively favourable COVID position and resilient commodity prices, it also reflects the recent surge in global liquidity and the fact that monetary policy here is not as loose as it could be.
- The higher exchange rate may be explainable, but it is not helpful. The elimination of international tourism will mute exchange rate impacts on the economy - but not a lot. And that's not a reason to be complacent in any case. The NZD is an unhelpful headwind to broader exporting and import-competing firms, and will significantly dampen inflation, at a time when an economic boost in non-tourism industries would be welcome.
- With the outlook grim and risks to the downside, the best strategy for monetary policy is to do more. A "go hard, go early" approach is appropriate, including an expansion of QE. The RBNZ is keeping all options on the table for tools it could use, and those that would help dampen the exchange rate (or limit further appreciation) should be carefully considered.