The Reserve Bank of NZ has left its official cash rate at 0.25 percent, but like all other central banks around the world, it remains uncertain about the future and whether the current level of stimulus is enough.
The decision is not a surprise and comes after Statistics NZ revealed last week the economy contracted at an annual rate of 1.6% in the three months to March.
The central bank said its monetary policy committee agreed that it was “not yet clear whether the monetary stimulus delivered to date is sufficient to meet its mandate”.
“The economic risks remain to the downside despite some … data suggesting that demand has increased since the end of alert level 2 restrictions,” the RBNZ said in yesterday’s post-meeting statement.
The bank said it had also agreed to continue with its quantitative easing programme, within its current cap of $NZ60 billion, to “keep interest rates low for the foreseeable future”.
But it again left the door open to increasing that cap and deploying other additional measures to “provide additional stimulus as necessary”.
Any change in the size of its QE programme would “need to be of sufficient magnitude to make a meaningful difference”, it said.
The Bank said in its post-policy meeting statement that the country had contained the spread of Covid-19 locally “for now”, enabling a move down alert levels earlier than it had previously assumed and that the fiscal stimulus in the May Budget was also slightly larger than it had assumed. There was one new case reported yesterday).
“These outcomes give cause for some confidence but significant economic challenges remain,” The RBNZ said.
But it’s worried about the recent appreciation of the New Zealand dollar, saying that would place “further pressure on export earnings”. That’s a function of the recent weakness in the value of the greenback that has also seen the Aussie dollar touch 70 US cents recently.
The extra options the bank could deploy in future to further ease monetary conditions – in addition to more QE – included “a term lending facility, reductions in the OCR, and foreign asset purchases”, it said.
Governor Adrian Orr said on March 16 when the RBNZ slashed the OCR rate from 1% to 0.25% that he would leave it at that rate for a year.
That’s a far more certain time frame in Australia where the Reserve bank and governor Phil Lowe have said the current 0.25% cash rate would remain in place for some years.