New Zealand central bank governor says not ruling out negative interest rates

[WELLINGTON] The governor of the Reserve Bank of New Zealand (RBNZ) said on Thursday that negative interest rates are not off the table in its response to the economic fallout of the coronavirus crisis.

RBNZ cut its official cash rate (OCR) to 0.25 per cent in March in response to the pandemic, and pledged to keep it at that level for at least 12 months.

When asked by a parliamentary committee what other stimulus steps could be taken, Adrian Orr told lawmakers: "At most we are the end of the beginning, around what may need to be done and what we can do.

"Likewise, negative interest rates are not ruled off the table...and there are other direct financing measures," he added.

The New Zealand dollar dropped 0.6 per cent to US$0.5953 after the comments.

Prime Minister Jacinda Ardern imposed a one-month lockdown to beat Covid-19, which ends next week. The government will decide whether to lift or extend the restrictions on Monday.

RBNZ started a quantitative easing programme last month, buying up to NZ$30 billion (S$24.3 billion) worth of government bonds, echoing other central banks' moves to mitigate the impact of the coronavirus, which is expected to push the global economy into a sharp recession.

Orr said domestic demand will be continue to be sluggish even if country comes out of the lockdown. He added that without the quantitative easing the country would have be facing deflation.

RBNZ Assistant Governor Christian Hawkesby, who also spoke to the committee, said the IMF had some rosy assumptions about how quickly activity can get back to normal not just in New Zealand and Australia, but other countries too.

He added that under the current lockdown economic activity in New Zealand would be 35 per cent below normal.

New Zealand has reported 1,386 cases of the virus, with 9 deaths.

REUTERS