RBNZ Says It Can Increase Weekly Bond Purchases If Needed :

(Bloomberg) -- New Zealand’s central bank said it’s watching financial markets closely for signs of dysfunction and warned it has the ability to increase its weekly bond purchases to put more downward pressure on yields.The Reserve Bank “observed pockets of dysfunction” last week and has the operational flexibility to adjust its Large Scale Asset Purchase program up or down, Assistant Governor Christian Hawkesby said in an interview Tuesday in Wellington. Under the NZ$100 billion ($73 billion) program, the bank is currently buying NZ$570 million of government bonds a week.“We are watching markets very closely, we’re very aware of what’s going on and we do have that ability to adjust the size of our LSAP operations from week to week,” Hawkesby said. “We absolutely have the flexibility to adjust those purchases down or up.”Central banks are fighting back against runaway bets on inflation that have seen global bond yields surge, undermining monetary stimulus. The Reserve Bank of Australia yesterday bought twice as many longer-dated government bonds as it usually does, spurring the biggest drop in yields there in a year.Hawkesby noted the RBA’s recent purchases and reiterated that the RBNZ remains committed to a prolonged period of stimulus. The bank could cut its official cash rate -- currently at 0.25% -- further if needed, even into negative territory, he said.“The message that we’re giving along with other central banks is that stimulus is going to be in place for a long time, that we need to have a very high degree of confidence that we’re going to achieve our mandate and that will take time and patience to occur,” Hawkesby said. “We have to ability to lower the official cash rate, and we need to keep reminding markets that we have that ability.”While the economic recovery in New Zealand has been stronger than elsewhere, “it has been very uneven, it is very fragile” and “there is a material probability that we may have to lower the official cash rate” to achieve the RBNZ’s mandate, Hawkesby said.He cited the current Auckland lockdown due to a Covid-19 outbreak as a reminder of the risks. “There’s still a long way to go. These periods can erode confidence,” he said.New Zealand Central Bank Told to Include Housing in Rate PolicyAsked about the government’s move last week to make the RBNZ take soaring house prices into consideration when setting both monetary and financial policy, Hawkesby said the directive on financial policy was “the first and most important part of the changes.”He said the RBNZ’s financial policy is now required to “have regard” to housing, while the bank has only been asked to “assess the implications” of its monetary policy decisions on the property market. He drew a distinction between the two, saying the former was a “higher threshold” than the latter, which amounted to “a point around transparency and communication.”“The key message is that the appropriate tool to use if we’re going to influence sustainable house prices is our macroprudential tools,” Hawkesby said. “When we make our monetary policy decisions we need to make them with a clear understanding of the broader context we’re operating in. The remit helps articulate that more fully.”It would take time for markets to understand these announcements “and the primacy of the macroprudential tools in that space.”The RBNZ would like to see mortgage rates fall further, Hawkesby said.(Updates with Hawkesby comments throughout)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

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