RBNZ Expands Bond Purchases to Sustain Economic Recovery

Bloomberg

Published Aug 11, 2020 22:11

Updated Aug 11, 2020 22:36

(Bloomberg) -- New Zealand’s central bank expanded its quantitative easing program and said it is open to cutting interest rates further, including taking them negative, in an effort to sustain the economic recovery from the coronavirus pandemic.

The Reserve Bank increased its Large Scale Asset Purchase program to as much as NZ$100 billion ($65 billion) from NZ$60 billion, and extended it until June 2022, according to a statement Wednesday in Wellington. Policy makers maintained the official cash rate at a record-low 0.25% and said they are prepared to use additional monetary policy tools such as negative rates if required.

“A package of additional monetary instruments must remain in active preparation,” the RBNZ said. “The package of further instruments includes a negative OCR supported by funding retail banks directly. Purchases of foreign assets also remain an option.”

New Zealand’s economy has performed better than expected after the country’s initial success in wiping out the coronavirus. But the emergence yesterday of the first local cases in more than three months has dealt a blow to the outlook as largest city Auckland is placed back into lockdown. With the pandemic continuing to rage globally, the central bank noted downside risks.

“The severe global economic disruption caused by the pandemic is persisting,” it said. “Any significant change in the global and domestic economic outlook remains dependent on the containment of the virus, which is highly uncertain as evidenced today by the return to social restrictions in New Zealand.”

The New Zealand dollar fell to a one-month low after the announcement. It fell as low as 65.25 U.S. cents from 65.67 cents beforehand.

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