The Reserve Bank of New Zealand (RBNZ) is seen holding the official cash rate at 0.25% at a monetary policy meeting on Wednesday and leaving its quantitative easing programme untouched, all economists forecasted in a Reuters poll.
But markets will look for clues on a move to 0% or negative OCR, although stronger than expected data gives the RBNZ enough room to stick to its guidance of not lowering rates until March next year.
Governor Adrian Orr is expected to announce details of the new funding-for-lending (FLP) programme, which would give out cheap loans for banks and stimulate the economy.
ANZ Bank said the programme would have relatively few strings attached to facilitate take-up and may be priced at or near the OCR and be sized around NZ$30 billion-NZ$50 billion ($20.39 billion-$33.98 billion).
"In our view, the odds of a negative OCR have reduced, and the implementation of the FLP could see a negative OCR implemented later or more gradually," said ANZ Chief Economist Sharon Zollner.
New Zealand reported an unemployment rate of 5.3% last week, well short of RBNZ's forecast of 7%. Its success in containing the community spread of COVID-19 has allowed the economy to bounce back faster than most other countries in the world.
But with more job losses expected in the coming quarters, inflation remaining weak and the economy in a deep recession, RBNZ is expected continue its monetary support.
The bank reiterated last month that negative rates are a real possibility and banks were being readied to deploy them.
"We still expect the RBNZ to cut the OCR below 0% next year, but at a more gradual pace than the 'big bang' cut we had factored in previously," said Westpac Bank Chief Economist Dominick Stephens.
($1 = 1.4717 New Zealand dollars)
(Reporting by Praveen Menon; Editing by Sam Holmes)
