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New Zealand Central Bank Keeps Rate, QE Unchanged

newzealandcentralbank sept25 24jun20 lt

New Zealand's central bank maintained its interest rate and quantitative easing unchanged as social restrictions to contain the spread of coronavirus were relaxed and domestic operations resumed earlier than expected.

The Monetary Policy Committee of the Reserve Bank of New Zealand, on Wednesday, decided to hold its interest rate at a record low 0.25 percent.

The asset purchase programme was retained at NZ$60 billion after raising it from GBP 33 billion last month.

However, the MPC said it is prepared to provide additional stimulus as necessary. As well as potentially expanding the large scale asset purchase programme, the committee continues to prepare for the use of additional monetary policy tools as needed.

The bank observed that the severe economic disruption caused by the coronavirus, or Covid-19, pandemic is persisting, leading to lower economic activity, employment and inflation. Further, the negative impact was exacerbated by the border restrictions and the appreciation of the New Zealand dollar.

The support for the domestic economy was appropriately being provided through increased fiscal spending. However, monetary policy will continue to provide significant support.

Members noted that the extent of recovery will depend in part on the impact of these policy measures and the speed with which they are implemented.

The central bank sounded fairly balanced when it left policy settings unchanged today, Ben Udy, an economist at Capital Economics, said. But the bank is likely to cut rates into negative territory next year.

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