{"id":166541,"date":"2020-03-16T07:30:29","date_gmt":"2020-03-16T11:30:29","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=166541"},"modified":"2020-03-16T07:14:21","modified_gmt":"2020-03-16T11:14:21","slug":"new-zealand-cuts-rate-75-bps-next-move-qe-if-required","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/03\/new-zealand-cuts-rate-75-bps-next-move-qe-if-required\/","title":{"rendered":"New Zealand cuts rate 75 bps, next move QE if required"},"content":{"rendered":"
March 16, 2020<\/div>
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By CentralBankNews.info<\/u><\/a><\/p>\n

New Zealand’s’ central bank lowered its benchmark interest rate by a sharp 75 basis points to add further monetary stimulus in light of the negative impact on economic activity from the outbreak of the coronavirus, adding the rate “will remain at this level for at least the next 12 months.”<\/p>\n

The Reserve Bank of New Zealand (RBNZ) cut its Official Cash Rate (OCR) rate to a new record low of 0.25 percent, its first rate cut since August 2019, and said large scale purchases of New Zealand bonds would be preferable to further rate cuts if further stimulus were to be required.<\/p>\n

“The negative economic implications of the Covid-19 virus continue to rise warranting further monetary stimulus,” RBNZ said after an extraordinary meeting of its monetary policy committee.<\/p>\n

To support the availability of credit, RBNZ also delayed the start of higher capital requirements for banks by one year to July 1, 2021, and would consider further delays if necessary.<\/p>\n

It estimated this delay would enable banks to supply up to around $47 billion more in lending and the central bank is working on identifying other regulatory changes “to reduce the burden on financial institutions at this time of uncertainty.”<\/p>

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In February RBNZ left its rate steady, assuming the economic impact of the coronavirus, or Covid-19, would be of short duration but that it would have time to adjust its policy if the impact turned out to be larger and more persistent.<\/p>\n

Since then, the outlook for the global economy has deteriorated significantly as global trade, trade, business and consumer spending has been curtailed significantly while governments are imposing a variety of restraints to mitigate the virus transmission.<\/p>\n

“The negative impact on the New Zealand economy is, and will continue to be significant,” RBN said, adding demand for the country’s goods and services will be constrained, as will domestic production, while spending and investment will be subdued for an extended period.<\/p>\n

On the other hand, RBNZ said the country’s financial system remains sound, with financial institutions well capitalized and the government is operating an expansionary fiscal policy and has imminent intentions for a fiscal package to provide both targeted and broad-based stimulus.<\/p>\n

The New Zealand dollar has also depreciated, acting as a partial buffer for export earning.<\/p>\n

In its discussions, the policy committee debated cutting OCR by 50 basis points, with the ability to follow up with more stimulus as needed at the regularly scheduled policy meeting later this month, or an immediate 75 point rate cut.<\/p>\n

“Given views on the required level of stimulus given the economic impact of COVID-19, the Committee agreed a 0.75 percentage point reduction in the OCR would be a more suitable option,” RBNZ said.<\/p>\n

The committee agreed the scheduled policy meeting on March 25 was no longer needed.
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The Reserve Bank of New Zealand issued the following two statements:<\/p>\n

“The Official Cash Rate (OCR) is 0.25 percent, reduced from 1.0 percent, and will remain at this level for at least the next 12 months.<\/div>\n
The negative economic implications of the COVID-19 virus continue to rise warranting further monetary stimulus.<\/div>\n
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.<\/div>\n
Financial market pricing has responded to these events with declining global equity prices and increased interest rate spreads on traditionally riskier asset classes.<\/div>\n
The negative impact on the New Zealand economy is, and will continue to be, significant. Demand for New Zealand\u2019s 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.<\/div>\n
Several factors will continue to assist and support economic activity in New Zealand.<\/div>\n
New Zealand\u2019s 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.<\/div>\n
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.<\/div>\n
The New Zealand dollar exchange rate has also depreciated against our trading partners acting as a partial buffer for export earnings.<\/div>\n
And, the Monetary Policy Committee agreed to provide further support with the OCR now at 0.25 percent. The Committee agreed unanimously to keep the OCR at this level for at least 12 months.<\/div>\n
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.<\/div>\n
More information:<\/div>\n