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Large scale asset purchase programme process

Our Large Scale Asset Purchase (LSAP) programme involves us buying New Zealand government bonds from banks in the secondary market in exchange for electronically created money. It is one of a range of monetary policy tools we use to control inflation and lower interest rates. 

The Monetary Policy Committee agreed to halt the LSAP programme on 14 July 2021. The LSAP programme remains an important monetary policy tool if needed.

About large scale asset purchases (LSAP)

Operating rules and guidelines

The above operating rules and guidelines applying to participation in the auction are the same as our open market operations.

Approved legal entities

We approve the following legal entities in Yieldbroker to purchase large scale asset purchases at LSAP auctions. (Yieldbroker is an electronic trading platform for Australian and New Zealand debt securities and derivatives.)

  • ANZ Bank New Zealand Limited
  • Bank of New Zealand
  • Citibank NA
  • Commonwealth Bank of Australia
  • Deutsche Bank AG
  • The Hong Kong and Shanghai Banking Corporation Limited
  • JP Morgan Securities Australia Limited
  • Morgan Stanley & Co International plc
  • Rabobank New Zealand Limited
  • The Toronto Dominion Bank
  • UBS AG
  • Westpac New Zealand Limited
  • Westpac Banking Corporation

LSAP indemnity

The Crown has agreed to indemnify the Reserve Bank in respect to financial losses associated with the LSAP programme. Under the letter of indemnity issued by the Minister of Finance, the Crown will reimburse the Bank for any net losses from the LSAP programme and, conversely, any surplus from the programme must be paid to the Crown. If, for example, we have net mark-to-market losses from LSAP bonds, we will have a corresponding receivable from the Crown, which will be accounted for as an asset in our balance sheet. Movements in this balance have no impact on the consolidated Crown balance sheet, as they are claims between the RBNZ and the Crown. The Crown indemnity balance for the LSAP programme can be found on the asset side of our balance sheet. This is due to mark-to-market losses on our LSAP bond holdings driven by the increase in market bond yields. We expect the Crown indemnity balance to fluctuate in line with market movements.

LSAP indemnity transfers

The monthly LSAP indemnity transfers include net interest income or expense and any realised mark-to-market gains or losses on LSAP bonds sold back to the Crown.

Unrealised mark-to-market losses on LSAP bonds still held under the LSAP programme are included in the Crown indemnity balance on the asset side of our balance sheet.

Net interest income or expense is the interest income received from LSAP bonds less the funding expense (OCR).

Using our balance sheet to support monetary and financial stability

Programme key dates 

23 February 2022

On Wednesday 23 February, the Monetary Policy Committee reached a consensus to:

  • Not reinvest the proceeds of any upcoming LSAP bond maturities.

  • In addition, direct the Reserve Bank to sell nominal New Zealand Government Bonds and Inflation-indexed New Zealand Government Bonds to New Zealand Debt Management at a rate of $5 billion per fiscal year, commencing in July 2022, provided it remained consistent with the Bank’s monetary policy objectives, and subject to market conditions.

  • Hold the Local Government Funding Agency bonds until maturity.

14 July 2021

The Monetary Policy Committee (MPC) agreed to reduce the current stimulatory level of monetary settings in order to meet its consumer price and employment objectives over the medium term. We will halt additional asset purchases under the LSAP programme by 23 July 2021. The MPC will keep the OCR at 0.25% and the Funding for Lending Programme unchanged.

12 August 2020: Further easing in monetary policy delivered

The MPC agreed to expand the LSAP programme up to $100 billion to further lower retail interest rates to achieve its remit. The eligible assets remain the same and the OCR is being held at 0.25% in accordance with the guidance issued on 16 March.

13 May 2020: LSAP programme expanded

The MPC agreed to significantly expand the LSAP programme potential to $60 billion, up from the previous $33 billion limit.

14 April 2020: First auction for LGFA bonds

The first auction of LGFA bonds was held in the week beginning 14 April. The operational procedures were the same as announced in the media release of 23 March 2020.

7 April 2020: $3 billion LGFA bonds added

On 7 April 2020, we added $3 billion of LGFA debt to our LSAP programme.

This represented about 30% of the total LGFA debt on issue. It takes the total size of the LSAP to $33 billion over 12 months.

As with government bonds, buying LGFA bonds also plays an important role in determining interest rates faced by businesses and households and is aimed at providing stability and retaining confidence in New Zealand’s capital market.

23 March 2020: LSAP begins

We began our large scale asset purchases of New Zealand government bonds in the secondary market on 25 March 2020.

The total programme size will be NZ$30 billion over a 12-month period. Within this programme size, we reserve the right to alter the composition and volume of purchases at our discretion.

Initially we will buy NZ$750 million bonds each week. We will review this amount regularly to ensure the efficiency and efficacy of the LSAP programme.

LSAP media releases

Background note: Monetary Policy Tools and the RBNZ Balance Sheet – 18 August 2022

Further easing in monetary policy delivered – 12 August 2020

Large Scale Asset Purchases expanded – 13 May 2020

Expanded large scale asset purchases – 7 April 2020

Domestic markets release: Reserve Bank to extend large scale asset purchases – 7 April 2020

Domestic markets release: Reserve Bank to begin large scale asset purchase – 23 March 2020