Covid-19 forces official cash rate cut

Covid-19’s negative economic impact has led the Reserve Bank to cut New Zealand’s official cash rate (OCR) from 1.0 percent to 0.25 percent

The OCR will stay at that level for at least the next 12 months.

The bank says the negative impact on the economy will continue to be significant, with lower demand for NZ-produced goods and services and reduced domestic production. Spending and investment will be subdued for an extended period.

But it says several factors will help and support economic activity in New Zealand.

The financial system remains sound, major financial institutions are well capitalised and liquid, and the Reserve Bank is 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 and broad-based economic stimulus.

The New Zealand dollar exchange rate has depreciated against our trading partners acting as a partial buffer for export earnings.

The Monetary Policy Committee has agreed to provide further support with the OCR now at 0.25 percent, and says that if further stimulus is required a large-scale asset purchase of New Zealand government bonds would be preferable to further OCR reductions.