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Large scale asset purchase programme

This page provides an overview of the programme, what we bought and when, and key decisions and announcements related to the programme.

The Monetary Policy Committee’s deliberations on the gradual reduction of the LSAP portfolio

On 23 February 2022 the Monetary Policy Committee agreed to commence the gradual reduction of the Reserve Bank’s bond holdings under the Large Scale Asset Purchase (LSAP) programme - through both bond maturities and managed sales. The Reserve Bank intends to commence bonds sales in July following further consultation with New Zealand Debt Management, NZDM, and will issue a market announcement in coming months outlining operational details prior to commencement.

More tightening needed

The Committee discussed options for gradually managing down the size of the LSAP portfolio, guided by its principles for monetary policy tools.

See Chapter 2, Box B of the February 2022 Monetary Policy Statement

February 2022 Monetary Policy Statement

The Committee agreed that gradual reduction in the LSAP portfolio should seek to achieve three objectives:

  • Have minimal impact on monetary stimulus – the bond holdings will not be actively used to remove monetary stimulus;
  • Avoid harming the efficient functioning of financial markets which is essential for the functioning of the economy and the transmission of monetary policy; and
  • Ensure that the MPC have the capacity to use the LSAP tool effectively, if economic and financial conditions deteriorate.

Reducing bond holdings will provide the Committee more scope to use LSAPs in the future and will support the management of liquidity in the financial system. Some members noted that some longer-term interest rates may change as the market analyses the net effect on bond supply. However, bond holdings will be gradually reduced to minimise unnecessary volatility in interest rates, consistent with the Committee’s Remit.

The Committee considered whether selling bonds back into the secondary market would be appropriate and noted that selling bonds to New Zealand Debt Management (NZDM) would be the most efficient approach, providing the market with clarity around net bond supply.

The Committee agreed not to reinvest the proceeds of any upcoming bond maturities and directed the Reserve Bank to sell the nominal New Zealand Government Bonds and Inflation-indexed New Zealand Government Bonds to NZDM at a rate of $5 billion per fiscal year. The Committee agreed to hold the Local Government Funding Agency Bonds until maturity, as the holdings of these bonds are comparatively small.

This pace of sales would continue provided it remained consistent with the Reserve Bank’s monetary policy objectives, and subject to market conditions. The Committee reserves the right to change the rate of sales or halt sales should conditions change, but do not foresee such changes to be common. The Reserve Bank intends to commence bonds sales in July following further consultation with the NZDM, and will issue a market announcement in coming months outlining operational details prior to commencement.

In accordance with the LSAP indemnity, staff consulted the NZDM on a range of options for reducing the LSAP portfolio. The Committee’s decision to sell bonds back to the NZDM will have implications for the NZDM’s funding programme and the NZDM will provide updated issuance guidance at the Budget in May.

Members noted that the bond holdings would continue to provide a small amount of ongoing marginal monetary stimulus, which would gradually reduce over time as bonds holdings are reduced. Members reiterated that the OCR remains the most effective and efficient way of adjusting monetary stimulus in either direction. Therefore, the stance of monetary policy will continue to be communicated primarily via changes to the OCR and conditional forward guidance through the published OCR track.

This page provides further details of our Large Scale Asset Purchases (LSAP) programme, what we bought and when, and our key decisions and announcements for the programme. 

How the programme worked

The aim of the programme was to lower borrowing costs to households and businesses by injecting money into the economy through the purchase of various government bonds.

When we bought assets, this increased their price and so reduced their yield. That meant the interest rate, in this case on government bonds, fell. This has the effect of ‘lowering the tide’ on other interest rates in the economy, particularly longer-term interest rates of two years or more. It also reduced the cost of borrowing for households and businesses.

Secondly, our asset purchases encouraged the sellers of the government bonds to use the money they received from us to buy other financial assets like company shares, bonds or new lending – helping to inject money into the economy.

What we bought

The LSAP programme had the potential to buy up to $100 billion of New Zealand government bonds, Local Government Funding Agency (LGFA) bonds and New Zealand government inflation-indexed bonds in the secondary market by June 2022. When we stopped the programme in July 2021, we had bought close to $53 billion of bonds.

We published a weekly schedule on the amount of bonds we intended to buy through an auction process. We reviewed this schedule regularly and adjusted it as needed to ensure the LSAP programme was working as we intended to support jobs and the economy.

What the evidence shows

LSAP programmes have been conducted in the euro area, Japan, Sweden, the United Kingdom and United States.

The evidence shows LSAPs proved effective in providing much needed support, lowering long-term interest rates and exchange rates, and underpinning economic growth and inflation.

Studies found that government bond purchases worth 10% of GDP have, on average, lowered 10-year government bond yields by around 50 basis points.

We believe the peak impact of the LSAP programme occurred around the time of the August 2020 Monetary Policy Statement. This was when the market’s expectation of the extent of the programme was at its highest (that is, closest to the $100 billion limit).

During this time, we estimated that New Zealand government bond yields were at least 50 basis points, and potentially more than 100 basis points lower than they would have been without the LSAP programme.

Bond purchases results

View the Open market operations (D3) table

Decisions and announcements

Monetary stimulus reduced – 14 July 2021

The Monetary Policy Committee agreed to reduce the current stimulatory level of monetary settings 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.

Read the media release and record of meeting – 14 July 2021

Expanded large-scale asset purchases – 12 August 2020

The MPC agreed to significantly expand the LSAP programme potential to $100 billion, up from the previous $60 billion limit. The MPC agreed to buy up to $100 billion of NZ government bonds, LGFA bonds and NZ government inflation-indexed bonds in the secondary market by June 2022.

More information:

Expanded large-scale asset purchases – 13 May 2020

The MPC agreed to significantly expand the LSAP programme potential to $60 billion, up from the previous $33 billion limit. The LSAP programme includes NZ government bonds LGFA bonds, and now NZ government inflation-indexed bonds.

More information:

Expanded large-scale asset purchases – 7 April 2020

The MPC Committee added $3 billion of LGFA debt to the LSAP programme. This represents approximately 30% of the total LGFA debt on issue, and takes the total size of the LSAP to $33 billion over 12 months.

More information:

More information:

More details about the bond programme process – 23 March 2020

Bulletin article about the aspects of implementing unconventional monetary policy in New Zealand – May 2018