Forward guidance and unconventional monetary policy
I recently noticed that swap rates purchases were discussed as an unconventional monetary policy tool are discussed in Reserve Bank’s bulletin “Aspects of implementing unconventional monetary policy in New Zealand”.
Namely, they state:
“Purchasing interest rate swaps could be a way to signal that the Reserve
Bank expects to keep the OCR low for a prolonged period. Swap rates
comprise the expectations of future policy rates, the term risk premium,
and margin for bank credit risk.”
So why would we want to keep OCR persistently low in long-term? Let’s have a closer look at this.