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New Zealand Central Bank Expands QE

newzealandcentralbank sept25 11aug20 lt

New Zealand central bank expanded the asset purchase programme unexpectedly on Wednesday as downside risk to the outlook remains amid global economic disruption caused by the coronavirus pandemic.

The Monetary Policy Committee of the Reserve Bank of New Zealand decided to expand the Large Scale Asset Purchase programme up to NZ$100 billion and also agreed that a package of additional monetary instruments must remain in active preparation.

The central bank retained its key interest rate at 0.25 percent.

Members observed that significant uncertainty existed as to virus containment, and that this was dampening economic confidence globally.

As the nation contained the local spread of the coronavirus, members said the recent domestic economic activity and employment had been stronger than expected in the May Monetary Policy Statement.

However, the recovery in economic activity had been uneven across industries and regions, with ongoing international border restrictions severely curtailing migration and services' export earnings.

The MPC said that the outlook for global economic activity remains weak. It also noted that a rise in the New Zealand dollar exchange rate has moderated local exporters' incomes.

"The Committee noted a risk that persistent low inflation and employment become embedded in people's expectations, creating the need for more monetary stimulus than otherwise," the bank said.

Policymakers agreed that a deep and protracted economic downturn with high unemployment would pose a more serious risk to financial stability.

The higher cap on QE is not expected to be reached until June 2022, which means the Bank may not have to increase the current pace of asset purchases, Ben Udy, an economist at Capital Economics, said.

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