The Reserve Bank next month will start reducing the $54 billion stockpile of government bonds acquired during the initial outbreak of Covid-19, so it can be ready to buy more in the event of a future economic emergency.
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The Large Scale Asset Programme (LSAP), otherwise loosely called money printing, was brought in quickly in 2020 when Covid-19 appeared as part of a raft of measures to ensure liquidity in the financial system and keep banks funded to back businesses and households.
RBNZ senior manager for financial markets Dean Hill said the repayment process had been designed to be predictable and avoid disruption to financial markets.
"We're doing this in a way that doesn't disrupt the functioning of financial markets and the New Zealand bond market."
RBNZ ended the programme last July and will sell $5b a year to the Debt Management Office for the next five years, at the rate of $415 million a month from July through to May, and $435m for the month of June.
Hill said the RBNZ would sell its long dated bonds first and hold on to the short-term bonds until they matured. The RBNZ would also hold $1.8b worth of local government bonds until maturity.
The central bank should have cleared the LSAP purchases by mid-2027, essentially leaving it with a "clean slate" if it needed to cope with any future emergencies, he said.
"It creates some resilience for our monetary policy response in the future. The primary tool for monetary policy in the future will be the official cash rate and this will be a tool available to us but there's no guarantee we will deploy that tool in the future."
The bonds were worth nearly $8.4b less than what the Reserve Bank paid for them, which will be covered by a government indemnity.
However, the programme should not be judged by what it cost in simple dollar terms but what its value was during a time of crisis, Hill said.
"While there is a dollar sum that is part of that transaction we like to think of this as the wider benefit that the large scale asset programme created. The ultimate goal of that programme was to improve credit conditions to ensure proper market functioning and to boost the overall economy at a time when it needed a Covid response."
