Reserve Bank of New Zealand Adds a New Feature to Monetary Stimulus

November 11, 2020

Reserve Bank of New Zealand’s scheduled policy review The record low 0.25% Official Cash Rate was not changed. Such had been cut by 75 basis points last March and from as high as 3.50% prior to June 2015. Officials also reaffirmed its quantitative stimulus intended to buy a maximum of NZD 100 billion by mid-2022. Most significantly, however, a new funding-for-lending program equal to NZD 28 billion was introduced to incentivise banks to lend and to promote an eventual rise in CPI inflation and employment back to target. Officials note that Covid has been contained comparatively well in New Zealand and that such enabled the economy to be more resilient than assumed earlier. However, the economic downturn was New Zealand’s deepest since the 1930s nonetheless, risks are skewed to the downside, and significant monetary and fiscal stimulus is still required. The statement leaves open the future possibility of more monetary support and doesn’t rule out the possibility of negative interest rates.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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