RBNZ Keeps Cash Rate Unchanged, Prepared to Add Stimulus -- Update

By Stephen Wright

WELLINGTON, New Zealand--The Reserve Bank of New Zealand said the country's success so far in containing the spread of the coronavirus was cause for some confidence, but warned that economic risks remained.

The central bank on Wednesday left its cash rate unchanged at a record low of 0.25%, as expected. It also kept its government bond buying program unchanged at 60 billion New Zealand dollars (US$38.95 billion). The RBNZ had said in March that the cash rate would stay at 0.25% until March 2021.

More stimulus would be added as needed, the central bank said, but emphasized that increased government spending was the main support for the economy.

"New Zealand has contained the spread of Covid-19 locally for now, enabling a relaxation of social restrictions and an earlier resumption of domestic economic activity than assumed," RBNZ said. "These outcomes give cause for some confidence but significant economic challenges remain."

The economic impact domestically has been exacerbated by border closures around the world, RBNZ said, which includes New Zealand's own restrictions that have decimated the tourism industry.

New Zealand had 24 consecutive days with zero new coronavirus cases after a strict lockdown in April, which kept people at home and shuttered most businesses. The coronavirus-free streak ended on June 16 when health officials said two women, who had been allowed to leave quarantine early on compassionate grounds, tested positive.

The Reserve Bank left the possibility of a negative cash rate on the table for next year in stating that it continues to prepare unconventional policy tools.

New Zealand's central bank has already substantially eased monetary policy in response to the economic damage from the draconian measures to control the spread of the coronavirus.

It cut the cash rate by 75 basis points in March to its current record low. To keep wholesale interest rates down, the central bank has been buying government bonds in the secondary market, the first time it has carried out the so-called quantitative easing.

The RBNZ also has delayed the introduction of higher capital requirements for banks by a year and removed minimum-deposit restrictions on mortgage lending.

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