Reserve Bank of New Zealand holds rates, says prolonged support may be needed

[WELLINGTON] New Zealand's central bank held its official cash rate at 0.25 per cent, as expected, on Wednesday, but warned monetary policy may need to provide significant economic support for a long time as the world grapples with the coronavirus pandemic.

Economists in a Reuters poll had unanimously expected the to hold rates.

The bank also retained its large scale asset purchase (LSAP) programme at NZ$100 billion (S$90.44 billion) , as announced in August.

However, RBNZ, struck a dovish note saying further stimulus may be needed and it was prepared to use additional tools like a Funding for Lending Programme (FLP), a negative OCR, and purchases of foreign assets.

"Members agreed that monetary policy will need to provide significant economic support for a long time to come to meet the inflation and employment remit, and promote financial stability," RBNZ said in a post-meeting statement.

"They also agreed they are prepared to provide additional stimulus." The central bank said the FLP would be ready before the end of this year.

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The New Zealand Dollar dipped 0.3 per cent after the announcement.

"The Reserve Bank of New Zealand (RBNZ) continued to set the stage for negative rates today and we think the OCR will be cut into negative territory early next year," said Ben Udy, analyst at Capital Economics.

It is the fourth time the RBNZ has held rates this year, after stunning markets with a 75 basis points cut in an emergency meeting in March as Covid-19 broke out across New Zealand.

New Zealand fell into its deepest economic recession on record in the second quarter, data showed last week.

RBNZ said the ongoing virus-led activity restrictions - most notably in Auckland - had also continued to dampen economic activity, and business and consumer confidence.

The bank said it expects a rise in unemployment and an increase in firm closures, as weak economic conditions continue and as government spending measures like wage subsidies end.

REUTERS