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New Zealand central bank does not need alternative policy at this time
[BENGALURU] The Reserve Bank of New Zealand (RBNZ) does not need to use unconventional monetary policy just yet but is considering steps to ensure strong and sustained economic growth, Governor Adrian Orr said in a speech on Tuesday.
The RBNZ will continue using its official cash rate, currently at 1.00 per cent, until it reaches the zero lower bound, Mr Orr said.
"The Reserve Bank of New Zealand has not, and still does not, need to use alternative monetary policy instruments to the OCR. But it is best to be prepared," Mr Orr said in a speech titled 'Navigating at Low Altitude: Monetary Policy with Very Low Interest rates'.
The chance that its cash rate would be 1 per cent lower than now in two years was about 20 per cent, which means while an effective zero bound was far from the most likely outcome it could not be ruled out, Mr Orr said.
Possible unconventional policy steps under consideration include forward guidance, negative rates and interest rate swaps. It is also looking at large-scale asset purchases as well as buying foreign currency assets to lower the New Zealand dollar.
The kiwi was last down 0.1 per cent at US$0.6327, having fallen nearly 6 per cent since the beginning of this year.
"All of the conventional and unconventional monetary policy interventions discussed will be more effective when coordinated with supporting whole-of-government intervention activities," Mr Orr said.
Although Mr Orr's speech did not discuss current economic conditions or outlook for the cash rate, he said RBNZ policymakers would need to account for international monetary and fiscal responses at the next rate review on March 25.
The RBNZ slashed interest rates by 75 basis points last year and is widely expected to ease by another 25 basis points later this month to a record low 0.75 per cent.