N.Z. Central Bank to Publish Cash Rate Forecasts From Novemberby
Widening gap between OCR and bank-bill yield forces change
New projection method reduces ‘chance for confusion’: BNZ
New Zealand’s central bank will publish its forecasts for the Official Cash Rate from next month, increasing the transparency of how it communicates future interest-rate moves.
The Reserve Bank, which has traditionally provided monetary policy guidance using its forecasts for the bank-bill yield, will make the change from the next decision due Nov. 10, it said in a statement Tuesday. The central bank is switching methods after regulatory changes in global financial markets altered the relationship between bank-bill yield and OCR moves, it said.
“The bank views publishing a projection for the OCR as a more transparent way of presenting the expected policy actions needed to achieve its inflation target,” the RBNZ said. “It has no bearing on the way that the bank conducts monetary policy.”
The change brings the RBNZ into line with the practice of other central banks including Sweden’s and Norway’s that publish expected policy paths. New Zealand has used the bank-bill yield to signal future rate moves since the OCR was introduced as a benchmark in 1999.
Dropping the bill projections “makes utmost sense,” according to Bank of New Zealand. The RBNZ had risked sending the wrong messages as the spread between bank-bill yields and the cash rate widened, said Stephen Toplis, head of research in Wellington. For example, if the central bank expected the gap to grow even further, it would have been forced to project a gain in the three-month yield even if it assumed no move in the cash rate, he said.
“They have removed any chance that their technical interpretations on the spread are misinterpreted as monetary policy decisions,” said Toplis. “It’s appropriate. It reduces the chance for confusion.”
All 17 economists surveyed by Bloomberg expect the RBNZ will cut the OCR by a quarter point to 1.75 percent next month.