By James Glynn
The Reserve Bank of New Zealand left its official cash rate unchanged Wednesday but kept the door open to further policy easing, indicating the economic recovery from the effects of the Covid-19 pandemic is expected to be slow.
The central bank left its official cash rate at 0.25% as expected, while keeping in place a bond buying program, or large scale asset purchasing program (LSAP) of up to 100 billion New Zealand dollars (US$66.4 billion).
The RBNZ said it was prepared to deploy more stimulus if needed, adding that steps to boost the provision of bank credit, a move to negative interest rates, and the purchase of foreign assets were all possible.
"Monetary policy will need to provide significant economic support for a long time to come to meet the inflation and employment remit, and promote financial stability," the RBNZ said. Policy makers also agreed "they are prepared to provide additional stimulus."
New Zealand's economy has been hard hit by strict lockdowns to battle Covid-19, with the gross domestic product contracting 12.2% in the second quarter from the first quarter. Still, the blow has been cushioned to some extent by massive fiscal stimulus.
"Economic information available since the August Monetary Policy Statement, both international and domestic, has confirmed the level of economic activity remains significantly below that experienced prior to the COVID-19 economic disruption," the RBNZ said.
"Commodity prices for New Zealand's exports remain robust, but this has been partly offset by the New Zealand dollar exchange rate moderating the return to local export producers," the central bank added.
Significant fiscal stimulus is flowing to the economy but the RBNZ indicated concern that elements of the government's strategy were being wound up. The government's wage subsidy scheme is now closed to new entrants, it said.
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