The Reserve Bank of New Zealand has joined the growing list of central banks making an emergency cut in its key interest rate on Monday morning, slashing the Official Cash Rate from 1% to a new record low of 0.25%.
The cut was made 9 days before the RBNZ’s scheduled monetary policy meeting and the central bank unusually said the new record low will remain in place for the next 12 months.
It follows similar cuts by the US Fed (two weeks ago) and last week the Bank of England, the Bank of Canada and central banks across Asia.
But it came before the Fed’s latest move to slash rates and start a US$700 billion quantitative easing program.
And the RBNZ made it clear that if necessary, it too will start a program of quantitative easing by large scale buying of NZ government bonds
“The negative economic implications of the COVID-19 virus continue to rise warranting further monetary stimulus,” the RBNZ said in the statement.
The cut also follows the start of New Zealand’s clampdown on its borders from midnight Sunday.
“Since the outbreak of the virus, global trade, travel, and business and consumer spending have been curtailed significantly. Increasingly, governments internationally have imposed a variety of restraints on people movement within and across national borders in order to mitigate the virus transmission.
“The negative impact on the New Zealand economy is, and will continue to be, significant. Demand for New Zealand’s goods and services will be constrained, as will domestic production. Spending and investment will be subdued for an extended period while the responses to the COVID-19 virus evolve, “ the RBNZ said.
The central bank said there are several factors will continue to assist and support economic activity in New Zealand.
It said the country’s financial system “remains sound and our major financial institutions are well capitalised and liquid. The Reserve Bank is also ensuring that the banking system continues to function normally.”
“The Government is operating an expansionary fiscal policy and has imminent intentions to increase its support with a fiscal package to provide both targeted and broad-based economic stimulus.
“The New Zealand dollar exchange rate has also depreciated against our trading partners acting as a partial buffer for export earnings.”
“The Committee also agreed that should further stimulus be required, a Large Scale Asset Purchase programme of New Zealand government bonds would be preferable to further OCR reductions,” the statement concluded.
