Quantitative Easing

Reserve Bank cites heron to explain interest rate thinking

It was the heron, not the lark - neither the hawk, nor the dove for that matter - that pierced the frightening hollow of your ear.

John Bisset / Stuff

It was the heron, not the lark – neither the hawk, nor the dove for that matter – that pierced the frightening hollow of your ear.

Banking economists wonder if the Reserve Bank has practically confirmed that it will increase the official treasury rate by 25 basis points next month.

Careers are built on the correct reading of tea leaves dropped by central bankers in their speeches.

But Deputy Governor Christian Hawkesby issued a new one to analysts on Tuesday.

While central banks were often described as “hawkish” or “dovish,” it was the kōtuku (white heron) that provided “a more appropriate metaphor” for their monetary policies, he said.

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Defining monetary policy required an “adaptable approach, sometimes moving cautiously in small slow steps, and other times confidently, quickly and in large steps to remain successful,” said Hawkesby.

“In Maori culture, there are two whakataukī (proverbs) involving kōtuku that capture this trait of responding to the environment around you.

“The saying ‘he kōtuku rerenga tahi’ roughly translates to ‘a white heron’s flight is only seen once.’ It expresses the idea that when ready, open your wings and engage in flight, ”he said.

This approach was in line with the actions of the Reserve Bank at the start of the Covid crisis last year, he said, when the bank reduced OCR to 0.25% and embarked on a quantitative easing.

But herons were also known to take “thoughtful action” when assessing the environment around them – the source of the saying “tapuwae kōtuku,” Hawkesby said.

THING

What does the official cash rate mean?

“In the world of monetary policy setting, this translates into confidence in the outlook for the economy and a step in the right direction based on how the economy is likely to develop,” Hawkesby said.

“This is consistent with the observation that when there is a typical amount of uncertainty and risks are balanced, central banks overall tend to follow a smooth path and keep their policy rate unchanged or move incrementally. 25 basis points. “

The Reserve Bank’s monetary policy committee agreed in August that its “policy of least regret is to further reduce the level of monetary stimulus in order to anchor inflation expectations and continue to contribute to maximum sustainable employment.” , he noted.

Assuming Hawkesby was reporting that the Reserve Bank was in a reflective valuation mode rather than a sudden theft, the comments would strongly seem to imply that the bank is not considering increasing the OCR by 50bp to 0.75% when of its next meeting and instead signals a series of smaller increases.

Reserve Bank Deputy Governor Christian Hawkesby appeared to suggest the bank is preparing to move the official cash rate in small steps.

Ross Giblin / Stuff

Reserve Bank Deputy Governor Christian Hawkesby appeared to suggest the bank is preparing to move the official cash rate in small steps.

ASB chief economist Nick Tuffley said the speech suggested the Reserve Bank was still ready to increase OCR in the next monetary policy review on October 6 despite Auckland’s Level 3 lockdown “until decision time” and the outcome of the lockdown being uncertain.

“Given the uncertainties about the impact of the current Covid outbreak, we expect the Reserve Bank to take a ‘soft / gradual approach’ and progress in 25 bp increments,” he said. .

ANZ economists Sharon Zollner and David Croy said in a research note that they “never thought that a 50bp move was a likely start to the bull cycle” and the speech of Hawkesby had confirmed it.

“Our OCR forecast is unchanged, with increases of 25bp coming in October and November, with steady increases thereafter bringing OCR to 1.5% in August of next year,” they said. declared.


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