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RBNZ says it can increase weekly band purchases if needed

(Bloomberg) – New Zealand’s central bank said it was looking closely at the financial markets for signs of dysfunction and warned that it has the ability to increase its weekly bonds to put more downward pressure on returns. The Reserve Bank “observed pockets of dysfunction” last week and has the operational flexibility to adjust its program for the purchase of large-scale assets up or down, Assistant Governor Christian Hawkesby said in an interview Tuesday in Wellington. Under the $ 100 billion ($ 73 billion) program, the bank currently buys $ 570 million in government bonds per week. “We follow the markets very closely, we are very aware of what is happening and we have the opportunity to adjust the size of our LSAP business from week to week,” said Hawkesby. “We definitely have the flexibility to adjust these purchases downwards or upwards.” Central banks are fighting back against fierce investment in inflation, which has seen global bond yields rise, undermining monetary stimulus. The Reserve Bank of Australia yesterday bought twice as many government bonds with a longer term than usual, which spurred the biggest decline in yields there in one year. Hawkesby noted RBA’s recent acquisitions and reiterated that RBNZ is still engaged in a long period of stimulus. The bank could lower its official cash rate – currently 0.25% – further if necessary, even to negative territory, he said. “The message we give together with other central banks is that the stimulus will be in place for a long time, that we must have a very high degree of confidence that we will achieve our mandate and that it will take time and patience to occur. , says Hawkesby. “We need the ability to lower the official cash rate, and we need to keep reminding the markets that we have that ability.” Although the economic recovery in New Zealand has been stronger than elsewhere, “it has been very uneven, it is very fragile” and “there is a significant probability that we may need to lower the official cash rate” to achieve the RBNZ’s mandate , said Hawkesby. He cited the current Auckland locks due to a Covid-19 outbreak as a reminder of the risks. “There is still a long way to go. These periods can erode confidence, “he said. New Zealand’s central bank said to include housing in interest rate policy. Asked about the government’s commitment last week to get RBNZ to take into account rising house prices when determining both monetary and fiscal policy, Hawkesby said the fiscal policy directive was “the first and most important part of the changes.” He said that RBNZ’s fiscal policy must now “take into account” housing, while the bank has only been asked to “assess the consequences” of its monetary policy decisions. in the real estate market. He made a distinction between the two and said that the former was a “higher threshold” than the latter, which amounted to “a point about transparency and communication.” “The most important message is that the appropriate tool to use if we are to influence sustainable house prices is our macroprudential tools,” says Hawkesby. “When we make our monetary policy decisions, we must make them with a clear understanding of the broader context in which we work. The mission helps to put it more fully. “It would take time for markets to understand these messages” and preference for the macroprudential tools in this space. “RBNZ would like to see mortgage rates fall further,” Hawkesby said. (Updates with Hawkesby comments throughout) For more articles like this, visit us at bloomberg.com. Subscribe now to stay ahead of the most trusted business news sources. © 2021 Bloomberg LP