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New Zealand Expands QE, Maintains Key Rate

newzealandcentralbank sept25 12may20 lt

New Zealand's central bank decided to expand its asset purchase programme to reduce the cost of borrowing as coronavirus, or Covid-19, pandemic is set to lower growth, employment and inflation.

The Monetary Policy Committee of the Reserve Bank of New Zealand, on Wednesday, raised the large scale asset purchase programme potential to NZ$60 billion from NZ$33 billion.

Policymakers maintained the Official Cash Rate, or OCR, at 0.25 percent, as widely expected.

The monetary policy will continue to provide significant support through keeping interest rates low for the foreseeable future, the bank said.

The committee observed that a negative interest rate will become an option in future, but currently, expansion to asset purchase programme is the most effective way to deliver further stimulus.

The bank said it is prepared to use additional monetary policy tools if and when needed, including reducing the OCR further, adding other types of assets to the LSAP programme, and providing fixed term loans to banks.

Policymakers noted that a 'least regrets' monetary policy approach is needed, delivering stimulus sooner rather than later, and thus minimizing the risk that the stimulus delivered turns out not to be enough.

The asset purchase programme covers government bonds, local government funding agency bonds and, now, NZ government inflation-indexed bonds.

Policymakers discussed several different scenarios for the economic outlook. All scenarios involved a significant and unprecedented decline in economic activity and employment.

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