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RBNZ’s Additional Monetary Policy toolkit- RAMPed up

The Reserve Bank of New Zealand - Te Pūtea Matua rapidly developed and introduced additional monetary policy (AMP) tools in the wake of the COVID-19 pandemic in 2020.

This Reserve Bank Bulletin brings together details of the new tools and how they work.

Read RAMPed up: RBNZ's Additional Monetary Policy toolkit

The new tools that have been used in the past year include:

  • ‘forward guidance’- we committed to keep the Official Cash Rate at 0.25 percent for a year
  • the Large Scale Asset Purchase (LSAP) programme to buy government bonds in order to lower longer-term interest rates. Additional purchases under this programme are currently on hold as of 23 July
  • and the Funding for Lending (FLP) to help banks borrow at a low cost in order to support their customers.

Read the July OCR decision: Monetary Stimulus Reduced

Some of the new tools have been developed but not yet taken out of the toolkit. These include Negative Interest Rate Policy (NIRP), Transacting Interest Rate Swaps (TIRS), and Purchases of Foreign Assets (PFA).

The article also demonstrates how we apply our principles in considering these tools. These principles are the effectiveness, efficiency, impact on financial system soundness, public balance sheet risk, and operational readiness of these tools.

Like OCR changes, AMP tools work by changing the interest rates faced by borrowers and savers, in order to influence aggregate demand, inflation and employment. They can be used when the OCR faces operational or effectiveness constraints.

Our additional monetary policy tools have lowered interest rates, held the kiwi dollar down, and increased inflationary expectations, leading to more jobs and a boost to inflation.

While the economic outlook has been improving, it may deteriorate at some point in the future, and our toolkit is ready to respond.

Our tools remain essential for us to achieve our purpose – Toitū te Ōhanga, Toitū te Oranga – to enable the economic wellbeing and prosperity for all New Zealanders.

More information:

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