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New Zealand Monetary Policy March 2020

New Zealand: RBNZ rushes to support the economy at extraordinary meeting in March

On 15 March, at an extraordinary meeting, the Reserve Bank of New Zealand (RBNZ) decided to slash the official cash rate (OCR) from 1.00% to a new all-time low of 0.25% in order to shield the economy against the economic blow from coronavirus (Covid-19). Moreover, the Central Bank announced it is acting in coordination with the government, which will shortly deploy additional fiscal measures to sustain the economy. The Bank ruled out further rate cuts ahead, and, instead, stated it will resort to government bond purchases if need be.

The RBNZ highlighted that Covid-19 has hit global equity prices, sapped risk appetite and weighed on supply chains and spending plans. Although the Bank stressed that New Zealand’s financial system remains well capitalized, it acknowledged the economy needed special support. The Central Bank therefore axed rates, and also announced it will keep them at their current level at least for one year, although assured the OCR will not be taken below zero in the same time span, implicitly ruling out spillovers that negative rates could have on commercial banks’ profitability. Consequently, the Bank indicated large scale purchases of government bonds as the next best monetary tool to provide additional stimulus instead of rate cuts.

Having canceled the monetary policy meeting scheduled for 25 March, the next scheduled monetary policy meeting is on 13 May.

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