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Summary
- RBNZ is likely to announce the details of its new Funding for lending Programme (FLP) and keep OCR on hold at 0.25% at its monetary policy statement on 11 November.
- Banks would be encouraged to lend more to firms to help alleviate the soaring housing prices through RBNZ’s FLP.
- Economists expect that FLP could be targeted at business lending to improve economic activity instead of house prices, with most of them estimating RBNZ to take OCR to negative in 2021.
NZ central bank Governor Adrian Orr is likely to reveal a new monetary policy instrument that will drive borrowing costs to new record lows to accelerate economic growth. The Funding for Lending Program is witnessed as a vital step in RBNZ slashing official cash rate (OCR) into negative territory in 2021.
In a briefing on the possible shape of FLP, RBNZ stated that it could be launched before the end of this year to provide banks with long-term loans at or near to OCR.
The next RBNZ monetary policy statement is due on 11 November, where it is widely anticipated to lay out plans to provide cheap loans to banks through FLP programme and keep OCR on hold at 0.25%.
Economists expect RBNZ to focus on FLP in the next policy review
The FLP is likely to be targeted by the Reserve Bank to promote lending to firms and small to medium enterprises as worries about the hot housing market stay high.
Mark Smith Senior Economist at ASB, stated that the focus of RBNZ would be on the FLP Programme with the intent to lower interest rates for the customer and subsequently, provide the economy with additional stimulus.
He also expects that the size and layout of FLP would have a crucial impact on its take-up for business or SME lending and efficiency.
ASB expects that FLP could be in operation before the end of 2020, to be sizeable in the range of NZ$30 billion, longer-term (3-5 years) and offer attractive rates to banks to push them to take-up more of lending. However, the real assessment would be what the programme would do to lending rates and credit growth.
Jarod Kerr of Kiwibank stated that the outlook remains uncertain and expects OCR to drop further in the coming months. He thinks RBNZ would hint further at a rate cut in the policy review.
ALSO READ: Funding for Lending (FLP) a big boon for NZX Banks
He noted that a negative OCR might not be effective but expects the central bank to slash the rates to negative in early 2021.
Dominick Stephens Chief Economist at Westpac expects RBNZ to launch FLP this week and cut OCR below 0 in 2021, thus slowing the rate of bond purchases under Long Term Asset Purchasing Program (LSAP) at the same time.
He roughly expects that RBNZ would encourage banks to borrow 3% of outstanding loans from FLP. The FLP could include strong incentives for banks to increase lending to businesses.
Sharon Zollner Chief Economist at ANZ, expects RBNZ to concentrate on FLP programme in the upcoming monetary policy review. If the bank thinks more is needed, they can predict negative rates in February and implement the same in April.
