FXStreet reports that Lee Sue Ann, Economist at UOB Group, noted the potential use of negative rates by the RBNZ still remains as a (very) long shot.

“The last monetary policy meeting in May culminated in the RBNZ keeping the overnight cash rate (OCR) steady at a record-low of 0.25%. However, the Large Scale Asset Purchase (LSAP) programme was expanded to a potential NZD60bn (around 20% of GDP), from its previous limit of NZD33bn.”

“In the accompanying press release, the RBNZ stated that “the Monetary Policy Committee is prepared to use additional monetary policy tools if and when needed, including reducing the OCR further, adding other types of assets to the LSAP programme, and providing fixed term loans to banks. The minutes of the May meeting revealed that policymakers discussed the option of a negative OCR in future, although at present financial institutions are not yet operationally ready.”

“We cannot rule out the possibility of negative interest rates in time, but that will come with considerable baggage and we do not expect the RBNZ to employ that option at this juncture. QE needs to run its course first. On that front, there is no reason to think that QE will be less effective in New Zealand despite the small government bond market. For now, we think the RBNZ will continue to use volume announcements (eg. the programme is currently NZD60bn in size) as it fine-tunes its policy stance. We expect QE to be expanded to a cap of NZD90bn by August. Another option for the RBNZ is to adjust the QE programme to a type of “yield curve control” (or YCC), as used in Australia.”