New Zealand slashes rates as PM warns of recession

Andrew Cummings
March 17, 2020

In its accompanying press release, the RBNZ stated that the OCR will "remain at this level for at least the next 12 months", adding that should further stimulus be required, it would "turn to quantitative easing (QE) for the first time in New Zealand history by undertaking large-scale purchases of government bonds".

He said the Government has been working closely with the Reserve Bank in a co-ordinated response to the economic impacts caused by Covid-19.

Ardern's government is set to unveil on Tuesday a multi-billion-dollar stimulus package, which the Reserve Bank of New Zealand said would complement its rate cut.

Governor Adrian Orr said the cut was necessary to support businesses and employment.

Asked about global coordination with other central banks around the world, Orr said the Reserve Bank acted independently.

The last time the RBNZ made such a big cut was in March 2011 after the Canterbury natural disaster.

The cut also follows the start of New Zealand's clampdown on its borders from midnight Sunday.

But he said the move was also meant to show that the RBNZ was not at this point contemplating negative interest rates, even as the policy options for central banks dwindle globally.

The Reserve Bank also made a decision to delay the implementation of controversial new capital rules which would have required the banks to hold more capital on their balance sheets.

The Reserve Bank has delayed the introduction of new capital rules for the banking sector in the wake of the coronavirus outbreak.


Deputy governor Geoff Bascand said the delay was needed to support lending during a period of much uncertainty.

Finance Minister Grant Robertson told RNZ's Morning Report the cut would provide some clarity.

"The RBNZ's emergency rate cut of 75 basis points is a last-ditch attempt to alleviate an nearly inevitable recession. 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.

"We are taking this action now to help support lending in the economy at a time when there is a lot of uncertainty".

The government over the weekend ordered all global arrivals to self isolate in a bid to slow its spread and is due to announce an economic stimulus package on Tuesday.

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