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For your Eyes Only: why NZ did "Quantitative Easing"

On March 2020, the Beehive issued a statement, "The Government is backing the Reserve Bank’s latest action to support the economy by reducing longer-term interest rates, meaning lower costs for businesses & mortgage holders & a lower currency to help our exporters". The RBNZ itself stated its QE program "had the effect of ‘lowering the tide’ .. particularly [on] longer-term interest rates of 2 years or more".

Yet the Governor, in trying to duck the blame for driving up house prices, stated in his speech this week to the Property Council, "It is worth noting, I have only mentioned global interest rates so far. NZ is a ‘price taker’ when it comes to determining the level of long-term interest rates". Yes, he's saying that the drop in long rates is not his responsibility since NZ is a "price taker" in these markets and has to accept the "global" level of long rates, being unable to materially reduce them via the Central Bank's own policies.

So to summarize. The Beehive stated, as well as the RBNZ's own publications, that the Bank's QE program was aimed at "reducing" & "lowering the tide" on "longer-term interest rates", meaning that it is a significant price-maker in these markets, whereas the RBNZ Governor just stated it is actually a "price-taker" & not "a price-maker" in such markets.

So what are we to make out of all this official confusion? That on economic grounds, the Kiwi QE program never made sense. Yet it was no accident. In addition to simply copying what other countries were doing, the RBNZ also had a political motive - to help Labour win the last election by creating “cheap” money.


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