24 Jun 2020

Official Cash Rate kept at 0.25 percent

2:49 pm on 24 June 2020

The Reserve Bank (RBNZ) has left its benchmark interest rate unchanged at a record low, but promised more action if needed to cushion the impact of the Covid-19 virus.

Adrian Orr, Governor of the Reserve Bank of New Zealand

Reserve Bank governor Adrian Orr. Photo: RNZ / Claire Eastham-Farrelly

The central bank's monetary policy committee held the official cash rate (OCR) at a record low 0.25 percent, as expected, and took no other policy action.

RBNZ governor Adrian Orr said the effects of the pandemic would last a long time here and around the world.

"The severe global economic disruption caused by the Covid-19 pandemic is persisting, leading to lower economic activity, employment, and inflation abroad and in New Zealand."

Read the RBNZ's Monetary Policy Statement here.

He said the economic impact was being made worse by border restrictions, with the risks to the downside, while the stronger New Zealand dollar was making it more difficult for exporters.

He said the main steps to combat the effects of the pandemic were being done by the government's fiscal measures outlined in the budget, but the RBNZ was ready to do more.

"The Monetary Policy Committee (MPC) is prepared to provide additional stimulus as necessary. As well as potentially expanding the LSAP (bond buying) programme, the Committee continues to prepare for the use of additional monetary policy tools as needed."

The RBNZ currently has a limit of $60 billion on its bond buying - otherwise known as quantitative easing - but it's expected that will have to be increased to $90bn or more going into next year, to help keep a lid on wholesale interest rates and ensure enough money in the economy.

"A change in the size of the programme would also need to be of sufficient magnitude to make a meaningful difference."

The minutes of the MPC meeting said the economy had returned from lockdown quicker than expected and the government's May budget had more stimulus than expected, resulting in an earlier rebound in retail spending and broader activity.

"These positives could be short-lived given the fragile nature of the global pandemic containment. The Committee agreed that current disruptions to supply chains and international travel - including tourism - will persist and constrain growth and employment," the minutes said.

More details on possibly increasing the bond-buying and other tools such as foreign asset purchases, further rate cuts, or special lending schemes would be discussed in the August monetary statement.

An economist said the statement held no surprises but had a slightly downbeat tone to the statement.

"Importantly, the RBNZ has continued to reiterate that it is prepared to do more stimulus if needed, and is working on getting the monetary tool kit fleshed out," ASB chief economist Nick Tuffley said.

The New Zealand dollar immediately fell close to half a cent against the US dollar after the announcement, but then recouped most of the losses to trade only marginally lower at 64.9 US cents.

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