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New Zealand Monetary Policy April 2020

New Zealand: RBNZ ramps up asset purchasing program in April

On 7 April, the Reserve Bank of New Zealand (RBNZ) decided to ramp up its asset purchasing program in order to ease liquidity strains in the funding market and thus soften the economic impact from Covid-19. Earlier in the month, the RBNZ ordered commercial banks to stop paying dividends and redeeming capital notes so as to strengthen capital buffers against the backdrop of contracting economic activity.

The RBNZ added NZD 3 billion (USD 1.8 billion) of local government debt to its Large Scale Asset Purchase program, taking its total size to NZD 33 billion. The Bank decided to expand the program as it noted that strain in the local government debt market was “posing a significant risk to the transmission of monetary policy”, and expected the additional stimulus to translate into lower interest rates for both firms and households. Meanwhile, the payment restrictions on dividends and capital notes introduced earlier in April should support financial system stability, preventing credit strain and financial turbulence.

The next monetary policy meeting is scheduled for 13 May.

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