RBNZ not bluffing on negative interest rates, says Christian Hawkesby

Talk of negative interest rates in New Zealand policy circles is not a “game of bluff” designed to devalue the currency.

Reserve Bank of New Zealand assistant governor Christian Hawkesby.

Talk of negative interest rates in New Zealand policy circles is not a “game of bluff” designed to devalue the currency, according to the country’s central bank.

Assistant governor Christian Hawkesby told the Citi annual investment conference on Wednesday that the RBNZ was seriously reviewing available options to achieve its economic objectives.

“It’s not a game of bluff; it’s a game of thinking what are the principles by which we choose our alternative tools – effectiveness, efficiency, financial stability, operational readiness, and the implications for our balance sheet,” Mr Hawkesby said in a Q&A session.

“We methodically go through those and think about how we can use the menu of tools to meet those principles, and the combination of the economic outlook and those principles will determine our actions.

“I think all central banks are going through that process.”

The RBNZ has asked the big four Australian banks, which dominate the NZ financial system, to ensure they are technically ready for a negative cash rate by the end of the year.

In contrast, Reserve Bank governor Philip Lowe has often said it’s “extraordinarily unlikely” that the RBA would take a similar move.

A frequent visitor to this country before COVID struck, Mr Hawkesby said he could “absolutely feel” the scepticism in Australia about the effectiveness of negative rates.

“To me, a lot of what I picked up was just a desire not to be seen as a basket case like these places in Europe and Japan,” he said.

“The key bit of feedback I get from (central bank counterparts) is the biggest challenge with negative policy rates is the communications challenge – how to explain it as a policy to the general public, how to win the argument, how to retain the hearts and minds that you’re doing the right thing for the right reasons.”