Economic Weekly: RBNZ readying to rock and roll on FLP

Last week, the RBNZ released its September monetary policy review. For those aficionados who recall the previous monetary policy statement, it was playing a very familiar song, with the OCR on hold at 0.25%, and the Large-Scale Asset Purchase Programme still pegged at $100 billion. The RBNZ kept singing the blues, highlighting the downbeat economic global outlook, and “unprecedented contraction” in Q2 GDP. The bank continued to highlight its three favourite options for additional monetary stimulus, with a ‘Funding for Lending Programme’ (FLP) – a cheap form of direct lending to banks, rounding out the trio with a negative OCR and foreign asset purchases.

Yet there was a notable departure. Previously, the Bank had suggested it would roll out alternative monetary policy as part of a joint package of measures. This time around, the RBNZ suggested they could be deployed independently, with the FLP being the first. The review stated that the FLP would be ready for deployment by the end of this calendar year (possibly as soon as November), rather than alongside a negative OCR in 2021.  In other words, the RBNZ has kept the same band playing the same tunes, but given one of the members a solo, and with a slightly faster tempo.

The news that the FLP could be deployed sooner and separately, was music to our ears. An earlier FLP gives financial institutions a measure of certainty and speeds up the transmission of lower borrowing costs to businesses and consumers. We could envisage the FLP being launched as early as the November MPS. We still expect the RBNZ to cut the OCR in 2021, with April as the most likely date. You can read our full review here.

Still, the shape and speed of further stimulus is hard to predict amidst all the uncertainty. Even interpreting the data when it does come in can be a challenge – what sounds like a sweet melody can be masking more worrying noises. For example, last week’s August trade showed a solid year-on-year lift in exports, seemingly highlighting the resilience of the NZ export sector. While that was true to a certain extent, the headline figures were also inflated by a large shipment of aircraft overseas for long-term storage while the border stays shut – a resonant reminder of tough times ahead. On a similar theme, data on the household sector seems to be both encouraging and worrying. On page 2, economist Mark Smith helps you interpret the cacophony.

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Jane Turner

Senior Economist

Originally hailing from sunny Nelson, Jane moved to Auckland to join the ASB team in 2008.  As Senior Economist, Jane's main focus is co-ordinating the team’s macro-economic forecasts.  In this key role, Jane was thrilled by the team’s twice consecutive win of the Consensus Economics Forecast Accuracy award.   

During her decade-long career in economic forecasting, Jane has gained a thorough knowledge of the New Zealand economy.  Her current focus is on New Zealand GDP growth, including both manufacturing and the construction sectors.  She has spent time forecasting most sectors of the economy, including inflation, trade, housing, labour and financial markets.

Prior to joining ASB, Jane honed her macro-economic forecasting skills at the Reserve Bank of New Zealand.  Jane is a qualified scarfie, attending Otago University and graduating with a Bachelor of Commerce in Economics with 1st class honours.  In 2014, she took a career break from ASB to travel the world and learn to snowboard.

Mark Smith

Senior Economist

Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.

His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.

Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.

Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.

When not at work Mark likes to travel, keep fit and spend time with his friends and family.

Mike Jones

Senior Economist

Mike joined ASB in 2019 armed with almost 15 years of experience in applied macroeconomic and financial markets analysis.

Mike's career has been all about distilling the risks and opportunities of economic and financial market trends for business. Basically asking the "what does it all mean" question. Mike's enthusiasm and skill for drawing out practical, commercial insights from the murky world of economics has been honed over a relatively broad base of experience.

After spending the early part of his career on the tools at the Reserve Banks of both NZ and Australia, Mike had a lengthy stint at BNZ where he was NZ’s top-ranked currency strategist. His regular and topical macro research also saw him pick up several FX forecast accuracy gongs from Bloomberg.

Drawn in by the prospect of putting strategy into practice, Mike moved from Wellington to Auckland in 2013 to join Fonterra as GM Treasury Risk Management. In this role, Mike lead Fonterra’s macroeconomic research output, and was responsible for the strategy and execution of Fonterra’s foreign exchange, debt, and interest rate hedging programmes.