Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Monetary Policy With Very Low Interest Rates

The Reserve Bank of New Zealand, Te Pūtea Matua, is taking proactive steps to ensure it is well positioned to effectively and efficiently manage New Zealand’s monetary policy in an environment of very low interest rates.

In a speech launching its Principles on Using Unconventional Monetary Policy, Reserve Bank Governor Adrian Orr said as kaitiaki (caretakers) of Te Pūtea Matua, the Bank’s activities involve continuous assessment of our monetary policy framework, including the most effective tools and their best application.

Mr Orr said the Reserve Bank has not, and still does not, need to use alternative monetary policy instruments to the OCR, but it is best to be prepared.

“An inability to predict what might happen next is no excuse for not preparing for what could happen. That’s true for businesses, governments and central banks. It is in light of both economic theory and recent global experience that we have been assessing what alternative monetary policy tools may be available to the Reserve Bank of New Zealand – and their relative desirability. We are fortunate, unlike many other OECD economies, to have the time to prepare for such possible needs.”

The Reserve Bank typically implements monetary policy by controlling the Official Cash Rate but as interest rates fall, this tool could be pushed to its limit in the future. Given this, in recent years, the Reserve Bank has been considering the unconventional monetary policy tools and policy framework that it would use to meet its policy targets.

The work to develop the Reserve Bank’s preparation for unconventional monetary policies has involved:

  • Identifying the suite of possible ‘unconventional monetary policy tools’ available to the Reserve Bank;
  • Defining and making explicit the criteria the Reserve Bank would use to assess these tools, against both each other and also alternative policies all together (e.g., fiscal policy options);
  • Considering the relative benefits and costs of the tools, so as to operate on a ‘least surprise’ basis, and to ensure the Reserve Bank works in collaboration and with the agreement of fiscal authorities;
  • Considering not just the monetary policy efficacy of the tools, but also broader considerations related to our financial stability and efficiency mandate; and
  • Ensuring the tools are actually able to be utilised, including working with the important financial institutions that make up our system.

“We are confident of our success in assessment and implementation, but we are also aware that these tools work best when supported by wider stabilisation policies and additional macroprudential considerations. In the event we ever had to use these unconventional tools, our goal would be to ensure a strong and sustained increase in economic activity, with inflation expectations remaining well-anchored on our target mid-point.”

In the coming weeks the Reserve Bank will release a series of technical papers explaining the tools in more detail, examining their pros and cons, and outlining how they would potentially be used.

Note:

The principles and speech do not discuss current economic conditions or the Reserve Bank’s outlook for the Official Cash Rate (OCR). The Reserve Bank’s next OCR decision is scheduled for March 25.

The Bank remains prepared in its business continuity role to ensure a well-functioning financial system, including ongoing consumer and business access to credit and cash, liquidity to the banking system and a stable payments and settlements system.

More information:

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Reserve Bank: RBNZ To Implement $30bn Large Scale Asset Purchase Programme Of NZ Govt Bonds

The Monetary Policy Committee (MPC) has decided to implement a Large Scale Asset Purchase programme (LSAP) of New Zealand government bonds. The negative economic implications of the coronavirus outbreak have continued to intensify. The Committee ... More>>

ALSO:

Elevate NZ: Venture Fund To Lift Productivity

The Government’s new $300 million venture capital fund - announced in last year’s Budget – is now open for business as the Elevate NZ Venture Fund. Finance Minister Grant Robertson says lifting New Zealand's productivity requires well-functioning ... More>>

ALSO:


COVID-19: Case Confirmed In NZ – Expert Reaction

After spreading across the globe for months, the first case of COVID-19 has been reported in New Zealand. The Ministry of Health says the risk of a community outbreak is low, due to their preparedness and the high awareness of the disease. The Science ... More>>

ALSO:

Agriculture: New Legislation To Boost Organics

New organics legislation will boost consumer confidence and help grow an innovative sector, says Food Safety Minister Damien O’Connor. “The Organics Product Bill, introduced to Parliament this week, aims to increase consumer confidence when purchasing ... More>>

ALSO:

Biodiversity Policy: Misinformation Circulating

Forest & Bird is concerned at misinformation circulating regarding a policy statement aimed at protecting New Zealand’s unique biodiversity. The National Policy Statement for Indigenous Biodiversity is being consulted on by the ... More>>

ALSO: