WELLINGTON (AFP) – New Zealand’s central bank announced plans to spend NZD30 billion (USD17.1 billion) on government bonds yesterday as a way of stimulating the virus-hit economy.
The move comes after the Reserve Bank of New Zealand (RBNZ) last week slashed its base rate to 0.25 per cent and the government unveiled a NZD12.1 billion spending package with a promise of more to come.
“The negative economic implications of the coronavirus outbreak have continued to intensify,” the bank said in a statement.
The monetary policy committee “agreed that further monetary stimulus is needed to meet its inflation and employment objectives”.
New Zealand has 66 confirmed cases of COVID-19 and no deaths yet in a population of around five million.
The economy, heavily reliant on tourism and farm exports, is worth about NZD310 billion a year, making the bank’s bond spending spree equivalent to almost 10 per cent of gross domestic product.
The bank said global and domestic travel restrictions were impacting economic activity, with the number of people infected by the virus worldwide was rising rapidly.
“The programme aims to provide further support to the economy, build confidence, and keep interest rates on government bonds low,” it said.
The move was announced before the sharemarket opened, but initial reaction from analysts was positive.
“The RBNZ has delivered today with a massive quantitative easing programme,” ANZ Bank’s chief New Zealand economist Sharon Zollner said in a note to clients.
“We are optimistic it will succeed in bringing long interest rates back down and facilitating the required huge ramp-up in government spending.”
Finance Minister Grant Robertson said that while the central bank acted independently, the government supported the purchase programme.
“We are all uniting together – the government, the Reserve Bank, private businesses and the retail banks – to cushion the impact on New Zealand from this global pandemic,” he said.