RBNZ Is Kind of Dovish , But Why Is NZD Going Up?

 The Reserve Bank of New Zealand (RBNZ) today decided to keep interest rates at a low of 0.25% and maintain a large-scale asset purchase program (LSAP) of NZ $ 100 billion at a policy meeting for the September session.

Based on the minutes of the meeting published following the decision, the central bank said it may launch a new stimulus tool this year to further reduce borrowing costs.

The monetary policy committee is expected to introduce a financing program for loans (FLP) to banks before the end of this year.

The central bank will start lending money directly to banks to lend to borrowers before the end of the year to lower interest rates on consumers.

The RBNZ is actively considering implementing a negative interest rate and says it will do so along with long-term financing for banks.

Today's statement indicates that the financing program will be introduced as a first step, which will allow policymakers to take more stimulus while current interest rates are maintained until March 2021 as previously announced.

Lower rates may be needed to help New Zealand recover from its worst economic contraction since the Great Depression weakened by the second wave of coronavirus in Auckland's largest city.

Unemployment is expected to rise following the closure of national borders which has crippled major tourism industries.

Following the central bank's decision, the New Zealand dollar once again showed an appreciation against the US dollar. However, the increase was relatively limited due to the risk-off sentiment in the market.