The New Zealand Dollar plunged 0.8% after the RBNZ said it remains “prepared to provide additional stimulus as necessary”. Keeping the official cash rate (OCR) steady at 0.25%, the committee maintained “the balance of economic risks remains to the downside”.
As the central bank “continues to prepare for the use of additional monetary policy tools”, uncertainty remains as to “whether the monetary stimulus delivered to date is sufficient to meet its mandate”.
Highlighting the “further pressure on export earnings” due to the recent “appreciation of New Zealand’s exchange rate” suggests the RBNZ may be considering future currency intervention, in combination with an expansion of the $60 billion Large Scale Asset Purchase (LSAP) programme, to continue to support the economic recovery.
Looking forward, the central bank “will outline the outlook for the LSAP programme” and “our readiness to deploy alternative monetary policy tools in our August statement”, with the implementation of yield curve control and negative interest rates remaining viable possibilities.