May 19, 2020 / 12:17 AM / 16 days ago

New Zealand central bank could expand, extend QE: official

SYDNEY (Reuters) - New Zealand’s central bank could expand its government bond buying programme further though it hopes to have more certainty in about three months’ time on whether to go harder or ease back stimulus, a top official said on Tuesday.

FILE PHOTO: A pedestrian walks past the main entrance to the Reserve Bank of New Zealand located in central Wellington, New Zealand, July 3, 2017. REUTERS/David Gray

Reserve Bank of New Zealand (RBNZ) Deputy Governor Geoff Bascand told Reuters the COVID-19 pandemic was dealing a “severe shock” to the country’s export-reliant economy, which is expected to contract a massive 21.8% in the current quarter.

“This is a situation where we have all been operating with an enormous degree of uncertainty,” Bascand told Reuters in an interview, referring to the coronavirus crisis.

“We’ll have more certainty in three months...We’ll know more about how this is playing out. We can re-evaluate if we need to do more or take the foot off the pedal a little bit in three months’ time.”

Last week, the RBNZ doubled the amount of bonds it would buy under its quantitative easing programme to NZ$60 billion ($36.20 billion) as it left its cash rate at a record low 0.25%.

It also flagged a possible shift to negative interest rates, saying it has asked banks to be ready for the regime by year-end.

The unprecedented prospect of negative rates comes as financial markets consider the possibility other central banks, including the U.S. Federal Reserve and Bank of England, may need to do the same amid falling consumer prices.

On Tuesday, Bascand said negative rates were one of many monetary policy options available to the RBNZ.

“We will evaluate negative rates alongside other options,” he said. “For now, we think the best thing we should be doing is large scale asset purchases and we’ve expanded that. We could expand it further if needed.”

New Zealand is among a handful of countries that has successfully curbed the spread of the coronavirus, thanks to a strict lockdown that forced all businesses to down shutters for more than a month.

The “level 4” restrictions have now been eased to “level 2” allowing businesses, including malls, cinemas, cafes and gyms, to re-open last week.

Reporting by Swati Pandey; Editing by Sam Holmes

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