Reserve Bank suspends OCR and presents new financing plan

The Reserve Bank has left its official cash rate unchanged at 0.25 percent, in line with market expectations.

The bank also said it would launch a loan financing program (FLP), aimed at lowering interest costs by offering cheap financing to banks, in December.

The Reserve Bank also left its government bond purchase limit at $ 100 billion.

An FLP would effectively offer commercial banks a discounted retail rate that would lower their financing costs and allow them to further reduce mortgage rates.

The New Zealand dollar firmed up a bit to 68.40 cents from $ 68.33 just before the 2pm kickoff.

On March 16, amid deep concern over the global spread of Covid-19, the central bank lowered OCR by 75 basis points to its current level and said it would remain at that level “for at least the next 12 months. “.

In today’s statement, the Reserve Bank said that economic activity since the August monetary policy statement, both international and domestic, had proven to be more resilient than previously assumed.

In New Zealand, this trend was evident in a variety of indicators, including employment, household spending, GDP, and asset prices.

These results reflect the effectiveness of the economic and health policy responses to the initial impact, he said.

“However, the impact of Covid-19 on the economy is very large and persistent, and inflation and employment will remain below remittance targets for an extended period.

“These results are despite the current significant fiscal and monetary stimulus,” he said.

The outlook for global economic activity continued to depend on containing the virus.

“While recent news on vaccine development is positive, there is still a long and uncertain delay before a widespread vaccine deployment is achieved,” the Reserve Bank said.

The bank said that restrictions at international borders will continue to restrict international trade and migration, with varying impacts on industries and regions.

International prices for New Zealand exports have remained firm, although export returns continue to be partially offset by the exchange rate of the New Zealand dollar.

Members of the bank’s monetary policy committee, in notes published with the Reserve Bank statement, said that the effectiveness of an FLP would depend on financial institutions passing on decreases in their financing costs to borrowers, and agreed to monitor closely transferring interest rates.

The committee said that similar programs deployed abroad had proven effective.