Economic and Fiscal Update
The Budget Economic and Fiscal Update 2022 (Budget Update) showed that the Treasury expects easing border restrictions and robust investment to support growth in 2022. However, rising interest rates are expected to slow economic growth over time. The fiscal outlook, albeit slightly weaker than previous forecasts, continues to show signs of recovery over the forecast period. The operating balance before gains and losses is now expected to return to surplus in 2024/25 (Figure 1), while net debt is expected to peak in 2023/24.
Some highlights from the Wellbeing Budget 2022 included: a cost of living package to support low and middle income families, reforming the health system to deliver better services, and investing NZ$2.9 billion from the Climate Emergency Response Fund to tackle climate change and focus on decarbonisation and greater energy independence.
The COVID-19 Response and Recovery Fund (CRRF) has been disestablished with the remainder of the CRRF reallocated to:
- Cost of living initiatives (NZ$1 billion)
- A tagged health contingency (NZ$1.2 billion)
- Budget 2022 operating decisions (NZ$250 million per annum)
For further up to date economic indicators read the Treasury’s latest Fortnightly Economic Update.
Figure 1: Operating balance before gains and losses
Source: Treasury
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Monetary Policy Update
Citing the need to constrain economic activity to better match New Zealand’s productive capacity, the RBNZ further increased the Official Cash Rate (OCR) by 50 bps to 2.00% at the May Monetary Policy Committee meeting. The RBNZ projected the OCR would need to rise to 4.0% to return inflation to its 1% to 3% target range and to reduce employment to its maximum sustainable level.
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Government Bond Market Developments
In conjunction with the Budget Update, New Zealand Debt Management (NZDM) updated the forecast core Crown borrowing programme.
The forecast 2022/23 New Zealand Government Bond (NZGB) programme is set at NZ$25 billion, NZ$7 billion higher than that published in December. Overall, NZGB programmes over the forecast period (2021/22 to 2025/26) were increased by a total of NZ$26 billion at the Budget Update, bringing programmes close to Budget 2021 forecasts (Figure 2). NZ$20 billion of this change was the incorporation of sales by the RBNZ, of NZGBs held under the Large-Scale Asset Purchase (LSAP) programme, to NZDM.
NZDM also announced it expects to issue two NZGBs via syndication, prior to 31 December 2022, subject to market conditions. In addition to the previously announced inaugural sovereign Green Bond, a tap syndication of the 2035 inflation-indexed bond (IIB) is expected to be undertaken alongside a repurchase of the 2025 IIB. Further details will be announced in subsequent updates.
Figure 2: Change in NZGB Programme forecasts
Source: Treasury
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The recently published June tender schedule stated that IIB tenders are scheduled for 9 June 2022 and 23 June 2022. As previously announced, IIB demand from market participants will be assessed on the Monday prior to a scheduled IIB tender. The information received will contribute to the decision to hold that tender, and the volume and the IIB maturity date(s) to be offered. If your organisation would like to provide feedback, please email investor.relations@treasury.govt.nz or NZDM would be happy to facilitate a call if preferred.
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COVID-19 Update
COVID-19 cases remain below ten thousand per day, with New Zealand operating at the ‘orange’ setting under the COVID-19 Protection Framework, where social distancing restrictions are limited. The country’s border is being steadily reopened, with vaccinated tourists and visa holders able to enter New Zealand from 11.59pm on 31 July.
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Upcoming Events
Green Bond Syndication - Prior to 31 December 2022
Tap syndication of the 2035 IIB undertaken alongside a repurchase of the 2025 IIB - Prior to 31 December 2022
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This E-Newsletter has been prepared by the Treasury on behalf of the New Zealand Government and is for general information purposes only. By reading the E -Newsletter materials, you acknowledge and agree to the contents of following disclaimer.
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