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Dominion-Post
Reserve Bank Governor Adrian Orr gave the bank word in March not to move the OCR before March next year.
The Reserve Bank agreed to spend $ 60 billion on quantitative easing to shore up the economy in the wake of the coronavirus pandemic.
That is higher than your previous spending limit of $ 33b.
Governor Adrian Orr said he had modeled “three scenarios” that would see a peak of unemployment between 9 and 12 percent.
The bank left the Official Cash Rate at 0.25 percent after Orr gave the central bank word in March that it would not move the rate for 12 months.
The compromise did not prevent some banks from speculating that the Reserve Bank could move the OCR into negative territory even before the end of the year.
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* Adrian Orr: economic shock waves will finally give way to a vibrant economy
The Reserve Bank seemed to suggest that a previous move could not be ruled out now.
The bank’s monetary policy committee said it was prepared to use additional monetary policy tools if necessary “including further reducing the OCR.”
But he said his “forward orientation” remained that the OCR would remain at 0.25 percent until early 2021.
Lt. Governor Geoff Bascand said he had written to banks asking them to make sure their IT systems can cope with a below-zero OCR by the end of the year.
The New Zealand dollar fell just over 0.5 cents to US60.3c within an hour of the bank’s monetary policy statement.
National Party finance spokesman Paul Goldsmith said the Reserve Bank’s forecast is tantamount to predicting “150,000 job losses in the next six months.”
“This is a devastating prediction and it emphasizes the very real need for a government with a credible economic plan to guide New Zealand,” he said.
“We know that big expenses will be needed in tomorrow’s Budget to support companies and save jobs, but we should not go deeper than necessary,” he said.
Not for syndication
The Reserve Bank’s forecasts amount to 150,000 job losses over six months, says National Party finance spokesman Paul Goldsmith.
The bank’s quantitative easing program is watching him buy central and local government bonds from existing investors, with the money the Reserve Bank essentially creates on its computers.
The goal is to lower interest rates and free up cash for private sector investment.
Orr said he was “very pleased” with the impact quantitative easing was having.
“We hope to see retail interest rates drop further as lower wholesale loan costs are transferred to retail clients,” the bank said in its statement on Wednesday.
The Reserve Bank has now agreed to add floating rate bonds to its quantitative easing program, in addition to its existing purchases of fixed interest bonds.
“The global economic disruption caused by the Covid-19 pandemic is expected to persist and lead to slower economic growth, employment and inflation both in New Zealand and abroad,” the bank said.
“Even if New Zealand successfully curbs the spread of the disease locally, reduced global activity will mean lower demand for many of New Zealand’s exports,” he warned.
The Reserve Bank described the global environment as “volatile and uncertain.”
“Some commodity prices are strong, but many of New Zealand’s trading partners are experiencing economic upheaval and declining activity.
“Despite pockets of relative strength, conditions in trading partners will be a drag on domestic activity,” he said.
The balance of the $ 60b of bond purchases would be made in the next 12 months, he said.
Until now, the Reserve Bank had spent about $ 10b on the program, ANZ said.
ANZ said it was interesting that the Reserve Bank’s “benchmark scenario” assumed that the government would spend “almost all of the $ 52b” that Parliament had previously approved to respond to the Covid-19 crash.
ASB chief economist Nick Tuffley said the increase in the quantitative easing program was “as expected” and had been widely reported.
A negative OCR remained “a possibility,” but it still seemed unlikely in 2020, he said.
“We have reservations about how beneficial a negative OCR would be in promoting easy credit terms.”
The Reserve Bank also seemed to have its doubts, Tuffley said, noting that the central bank said further OCR reductions at this stage would not be effective in reducing borrowing rates.
