The central bank may have missed a trick by not extending its bond-buying programme to cover corporate bonds, a fund manager at Fisher Funds says.
The Reserve Bank of New Zealand Photo: RNZ / Alexander Robertson
Yesterday, the Reserve Bank opted to hold the Official Cash Rate at 0.25 percent but double its Large Scale Asset Purchase (LSAP) programme to $60 billion.
Head of fixed income David McLeish said while the expansion was good, it could have included corporate bonds.
"I think that it could have helped, for sure. Going back to their comment that they made in their statement about the path of least regret being delivering large stimulus and more quickly - an action like that by including corporate bonds into the LSAP programme would have done that," McLeish said.
"So, I do think they may have missed a trick slightly. That said, they do have the ability at very short notice to be able to increase other securities and already some of the purchases that they've made of government-related securities has filtered through and helped drive down some of the costs for corporates as well, but certainly more direct assistance to the corporate space could have helped."
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The Reserve Bank wanted to take the OCR into negative but was being held back, McLeish said.
"It was really just due to the fact that some financial institutions were not operationally prepared that they were forced to hold off," he said.
"My understanding is that the pressure on these institutions has actually been ramped up by the Reserve Bank over the last couple of months ... it wants to cut the rate to negatives and I think it wants to do that sooner rather than later."
While the LSAP programme was helpful, small to medium entities - which needed cashflow now - would have preferred a rate cut, he said.
"[Quantitative easing] does have the impact of driving down interest rates across all the maturities but it is having an outsized impact on longer-term maturity interest rates, which actually don't - in my opinion - impact the most important borrowing rates in the New Zealand economy, those are mortgage rates and the borrowing rates for SMEs [small and medium-sized enterprises]," McLeish said.
"Their borrowing rates are largely fixed off one to three-year interest rates and that is the domain of the OCR."