SYDNEY, Oct 14 (Reuters) - Negative rates in New Zealand are
a real possibility and there are no concerns yet that such rates
would be problematic for banks, a senior central bank official
said on Wednesday.
Asked if the Reserve Bank of New Zealand (RBNZ) was merely
using the threat of negative rates to put downward pressure on
the New Zealand dollar, Assistant Governor Christian Hawkesby
said the guidance was not "a game of bluff".
Speaking via video link to a Citigroup conference in Sydney,
Hawkesby said he was aware of the "strong scepticism",
particularly in Australia, but reiterated that policymakers were
serious about negative rates as a policy option.
The RBNZ has repeatedly said negative interest rates were
under consideration as commercial banks were being operationally
readied to deploy them, if needed.
The RBNZ has held its official cash rate at a record low
0.25% since a larger-than-expected cut in March while pledging
to do more to support the virus-ravaged economy.
New Zealand fell into its deepest economic recession on
record in the second quarter, data showed last week, although
the contraction was slightly less severe than analysts had
Asked if there could be financial stability risks associated
with negative rates including the potential for a debt bubble,
Hawkesby replied that a "very weak" labour market was a bigger
Hawkesby said "effective lower bound" on rates - the point
beyond which further reduction in policy becomes less productive
- was an evolving concept and would ultimately depend on the
retail deposit curve.
The economy had surprised on the upside recently, he added,
although there was still a lot of uncertainty about the outlook,
meaning monetary policy will stay stimulatory for a long time to
"The economy is still on life support to some extent," he
said. "And, given the outlook, the economy will require
continued policy support."
(Editing by Jacqueline Wong)