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RBNZ launches unconventional response
New Zealand’s central bank has followed the Reserve Bank of Australia’s lead and engaged in unconventional monetary policy, which is becoming the new normal worldwide.
RBNZ launches unconventional response
New Zealand’s central bank has followed the Reserve Bank of Australia’s lead and engaged in unconventional monetary policy, which is becoming the new normal worldwide.
The Reserve Bank of New Zealand (RBNZ) will purchase up to $30 billion of New Zealand government bonds across a range of maturities in the secondary market in order to “provide further support to the economy, build confidence and keep interest rates on government bonds low”.
“The severity of the impacts on the New Zealand economy has increased,” the RBNZ said in a statement.
“Weaker global activity is affecting the economy through a range of channels, not just reduced trade. Domestic measures to contain the outbreak of the virus are also reducing economic activity. Employment and inflation are expected to fall relative to their targets in the near term.”
The bank also said that “communications should emphasise that the LSAP program would provide confidence and support for the government bond market”, while noting that the exact amount of stimulus is “difficult to quantify” and that the range of economic scenarios they had seen was consistent with the need to deliver a significant stimulus.
“The committee will monitor the effectiveness of the program and make adjustments and additions if needed,” the RBNZ said.
“The low OCR, lower long-term interest rates and the fiscal stimulus recently announced together provide considerable support to the economy through this challenging period.”
The measure comes as the RBA and the US Federal Reserve institute their own programs. The Fed has not deployed QE since the GFC, while the RBA’s action was the first of its kind in Australia.
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