Reserve
Bank announces
emergency official cash
rate cut
The Reserve Bank has cut its benchmark interest rate by
three quarters of a percentage point, to support the
economy against the impact of the Covid-19 virus.
Watch:
emergency official cash
rate cut
The Reserve Bank has cut its benchmark interest rate by
three quarters of a percentage point, to support the
economy against the impact of the Covid-19 virus.
Watch:
16 March, 2020
The
central bank cut its official cash rate to a record low 0.25 percent
from 1 percent.
Governor
Adrian Orr said the cut was necessary to support businesses and
employment.
"The
negative economic implications of the Covid-19 virus continue to rise
warranting further monetary stimulus."
"Since
the outbreak of the virus, global trade, travel, and business and
consumer spending have been curtailed significantly," he said.
At
a press conference after the announcement this morning, Orr said the
impact on the New Zealand economy was, and would continue to be,
significant.
"An
interest rate cut was not gonna stop Covid-19 virus, and monetary
policy should be done in a medium-term framework and with the best
information possible and with line of sight on what is happening to
other economic activity, for example fiscal policy.
"I
would love to think New Zealand is in exactly the right position in a
horrible situation to be in the best possible position that we can."
He
said there were however a couple of things to the country's advantage
that should be kept in mind.
"First
we are in a strong economic position at present, inflation is low and
stable and employment has been around its maximum sustainable level.
Second, New Zealand's financial system remains sound and our major
financial institutions are well capitalised and liquid."
He
said they expected growth and inflation to be lower, but would not
give an estimate of scale.
He
said
the central bank was planning to buy government debt bonds.
"As
big as is needed. One of the interesting challenges in New Zealand -
it's the irony of being well behaved - is that we don't have massive
amounts of government debt to buy, but we certainly have quite a lot
to buy for a significant monetary impulse.
"They
aren't the only assets that we could buy and large-scale asset
purchasing is also not the only tool that we have. We also have the
FX, and the stock market, and on and on and on."
The
last time the RBNZ made such a big cut was in March 2011 after the
Canterbury earthquake.
Central
banks around the world have been cutting rates to counter the
economic impact of the virus.
Orr
said the monetary policy committee had decided the OCR would stay at
the new low for at least 12 months, but it was reluctant to cut
further.
"The
Committee also agreed that should further stimulus be required, a
Large-Scale Asset Purchase programme of New Zealand government bonds
would be preferable to further OCR reductions."
Last
week, the bank outlined a range of unconventional monetary policy
tools such as negative interest rates, special loans to banks, and
buying bonds to put money into the economy.
The
rate cut will complement the government's planned economic package
due on Tuesday, which is expected to detail specific assistance to
businesses including wage subsidies, and cash grants.
The
RBNZ has been at pains to say that monetary policy can have only a
limited effect to counter the effect of the virus, but lower interest
rates will reduce borrowing costs and encourage banks to lend to
businesses, and ensure liquidity in the financial system.
The
New Zealand dollar fell to a near-11 year low of 59.7 US cents.
The
Reserve Bank is also giving retail banks a 12 month breathing space
over new rules requiring them to increase their capital reserves.
The
rules obliging banks to start beefing up their finances with more
capital were due to come into force in July.
The
Reserve Bank has delayed that for a year and says if necessary will
push that out further.
Deputy
governor Geoff Bascand said the delay was needed to support lending
during a period of much uncertainty.
All
the major banks have cut home loan interest rates in response to the
rate cut by the Reserve Bank.
Interest
on savings deposits had also been cut accordingly.
Finance
Minister Grant Robertson told RNZ's Morning Report the cut would
provide some clarity.
"I
certainly think it provides certainty for a lot of people, obviously
a 75 ... basis point cut, that is significant. One of the things we
sometimes hear from trading banks is they're not sure if they can
pass on the impacts of a cut because they're not sure whether it
might bounce back up again or go down further," he said.
"This
says certainly that this is the position that they're going to be in
for some time, so [banks] can now work with their customers to pass
on the benefits of the cut."
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