ASB are now looking for a negative cash rate in New Zealand with rate cuts taking the OCR to -0.5% most likely by April next year.

On the RBNZ last week ASB say:

  • The RBNZ delivered a more dovish than expected Monetary Policy Statement
  • raised its Large-Scale Asset Purchase Programme (LSAP) to $100bn
  • RBNZ also signalled a scaled up weekly asset purchase programme, keeping NZ 10-year bond yields (0.65%) around 3-month lows
  • The RBNZ also noted risks as being downwardly skewed and explicitly flagged a package of further easing measures

ASB on the expected negative cash rate:

  • have now pencilled in the OCR to be cut by 75bps to -0.50% by early 2021 (most likely April), with the OCR to remain at this level until the COVID-19 storm passes.
  • This is on the proviso that COVID-19 continues to remain a strong headwind to NZ and global economies, that operational hurdles around a negative OCR are cleared, that the RBNZ do not shift their earlier guidance on not changing the OCR till early next year, and that the lower OCR will be in conjunction with a funding for lending programme that will provide stable, low cost funding to banks that can be lent out.

NZD outlook:

  • fair-value' range implied by our short-term NZD/USD valuation model fall a cent, to 0.6350-0.6750
  • We'd expect any NZD weakness to continue to be most pronounced against the AUD
  • downside risks to our NZD/AUD forecasts continue to grow
  • estimate an NZD/AUD 'fair-value' range of 0.8500-0.9200

more to come