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Reserve Bank keeps official cash rate steady, expands bond buying by $40bn

The Reserve Bank (RBNZ) has stepped up its backing for the economy with a significant increase in its bond buying programme.

In its latest statement, the central bank's monetary policy committee held the official cash rate (OCR) at a record low 0.25 percent, as expected, but increased the quantitative easing to $100 billion from $60bn to add money to the economy and keep a lid on lending rates.

It said it was ready to roll out more measures if needed to support the economy.

"Reflecting a possible need for further monetary stimulus, the Committee also agreed that a package of additional monetary instruments must remain in active preparation," it said in a statement.

Read the RBNZ's full monetary policy statement here.

It said other tools it could use included a negative OCR supported by funding retail banks directly, and buying foreign assets.

The rebound in economy after the first lockdown was stronger than had been expected but disruption to the world economy was severe and the outlook was uncertain.

"Such uncertainty is stifling household and business spending appetites, as highlighted in confidence surveys," the committee said, adding that the risks were to the downside.

An economist said the statement showed the RBNZ was ready to act.

"The RBNZ has shown the market it has more firepower to keep interest rates low in New Zealand," ASB chief economist Nick Tuffley said.

The New Zealand dollar immediately fell about a third of a cent against the US dollar after the announcement, but then recouped most of the losses to trade only marginally lower at 65.6 US cents.

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