RBNZ to Provide Low-Cost Funds for Banks From December

By Stephen Wright

WELLINGTON, New Zealand--The Reserve Bank of New Zealand said Wednesday that it will provide cheap funding for banks to encourage lending, as its traditional lever for boosting the economy--lower interest rates--nears the point of exhaustion.

The central bank kept its cash rate unchanged at a record low 0.25% as was expected. The RBNZ had said in March that the rate would be left unchanged for a year.

The RBNZ said its funding-for-lending program will be ready in December. The facility will lend money to banks at the prevailing level of the cash rate for a three-year period.

The program "will reduce banks' funding costs and lower interest rates," the central bank said.

The RBNZ had previously asked banks to prepare for the possibility of a negative cash rate after the first quarter of next year and still held that out as a possibility.

Many economists, however, are skeptical about the need for negative wholesale interest rates and argue they could do more harm than good.

The policy could have the perverse effect of causing people to save more to make up for the reduced return on their savings, they argue.

Write to Stephen Wright at [e-mail]

(END) Dow Jones Newswires

11-10-20 2034ET