The Reserve Bank cut the official cashrate by 75 basis points, from 1% to 0.25%, this morning.
Bank governor Adrian Orr said in the 8am release the rate would remain at that level for at least the next 12 months.
He said New Zealand’s financial system remained sound and our major financial institutions were well capitalised & liquid.
The Reserve Bank’s monetary policy committee also agreed that, for further stimulus, a largescale asset purchase programme of NZ government bonds would be preferable to further official cashrate reductions.
The revised official cashrate will be effective from tomorrow, and the bank has canned its cashrate review scheduled for Wednesday next week, 25 March.
The bank’s statement:
The negative economic implications of the COVID-19 virus continue to rise, warranting further monetary stimulus.
Since the outbreak of the virus, global trade, travel and business & consumer spending have been curtailed significantly. Increasingly, governments internationally have imposed a variety of restraints on people movement within & across national borders in order to mitigate the virus transmission.
Financial market pricing has responded to these events with declining global equity prices & increased interest rate spreads on traditionally riskier asset classes.
The negative impact on the New Zealand economy is, and will continue to be, significant. Demand for New Zealand’s goods & services will be constrained, as will domestic production. Spending & investment will be subdued for an extended period while the responses to the COVID-19 virus evolve.
Several factors will continue to assist & support economic activity in New Zealand.
New Zealand’s financial system remains sound and our major financial institutions are well capitalised & liquid. The Reserve Bank is also ensuring that the banking system continues to function normally.
The Government is operating an expansionary fiscal policy and has imminent intentions to increase its support with a fiscal package to provide both targeted & broad-based economic stimulus.
The $NZ exchange rate has also depreciated against our trading partners, acting as a partial buffer for export earnings.
And the monetary policy committee agreed to provide further support with the official cashrate now at 0.25%. The committee agreed unanimously to keep the rate at this level for at least 12 months.
The committee also agreed that, should further stimulus be required, a largescale asset purchase programme of NZ government bonds would be preferable to further official cashrate reductions.
A livestream Mr Orr’s media conference will be available on the RBNZ YouTube channel at 11am today.
Attribution: Bank release.