This Financial Markets Statement outlines the operational details of the sales of New Zealand Government Securities purchased under the Large Scale Asset Purchase (LSAP) Programme.
On 23 February 2022, the Monetary Policy Committee (MPC) agreed to start the gradual reduction of the Reserve Bank’s bond holdings that were acquired under the LSAP programme. This will be done through both bond maturities and managed sales of New Zealand Government Securities to New Zealand Debt Management (NZDM). Reducing bond holdings will provide the MPC more scope to use LSAPs in future. The MPC agreed to hold the Local Government Funding Agency Bonds until maturity, as the holdings of these bonds are comparatively small.
The Reserve Bank intends to commence sales in July 2022 at a rate of $5 billion per fiscal year (June year) and will sell bonds in order of maturity date, beginning with the longest maturity. Shorter-maturity bonds will mature without reinvestment or sales. Sales are expected to continue in this gradual and predictable manner, subject to market conditions, until LSAP bond holdings have reduced to zero (expected to be in mid-2027). The MPC reserves the right to change the rate of sales or halt sales should conditions change, but do not expect such changes to be common. The NZDM have been consulted on the sales approach and any impact on net bond supply has been incorporated into their issuance guidance provided in Budget 2022. Bonds that NZDM repurchase from the Reserve Bank will be retired.
The Reserve Bank and NZDM will continue to collaborate closely to ensure the efficient functioning of the New Zealand Government Bond market.
In order to record the intent to proceed on the basis set out in this statement, as well as certain other operational details relating to the sales, the Reserve Bank and NZDM have signed a Memorandum of Understanding.
For further information contact:
Director of Financial Markets
Senior Manager, Financial Markets