Wellington, March 24, 2020
The Monetary Policy Committee of the Reserve Bank of New Zealand (RBNZ) has decided to implement a Large Scale Asset Purchase Programme (LSAP) of New Zealand Government Bonds.
The negative economic implications of the coronavirus outbreak have continued to intensify.
The Committee agreed that further monetary stimulus is needed to meet its inflation and employment objectives.
Globally, the number of people infected with the virus has increased rapidly and measures to contain the outbreak have become more restrictive.
Global trade and travel, and business and consumer spending have been curtailed significantly.
The severity of the impacts on the New Zealand economy has increased.
Weaker global activity is affecting the economy through a range of channels, not just reduced trade. Domestic measures to contain the outbreak of the virus are also reducing economic activity. Employment and inflation are expected to fall relative to their targets in the near term.
Tightened financial conditions
In addition, financial conditions have tightened unnecessarily over the past week, reducing the impact of the low OCR on achieving the mandate of the MPC.
Heightened risk aversion has caused a rise in interest rates on long-term New Zealand government bonds and the cost of bank funding.
The Committee has decided to implement a LSAP Programme of New Zealand government bonds. The Programme will purchase up to $30 billion of New Zealand government bonds, across a range of maturities, in the secondary market over the next 12 months.
The Programme aims to provide further support to the economy, build confidence, and keep interest rates on government bonds low.
The Committee will monitor the effectiveness of the Programme and make adjustments and additions if needed. The low OCR, lower long-term interest rates, and the fiscal stimulus recently announced together provide considerable support to the economy through this challenging period.
Source: Reserve Bank of New Zealand