Reserve Bank of New Zealand slashes cash rate, delays bank requirements

The Reserve Bank of NZ has cut its cash rate by 75 basis points and delayed bank capital moves to free up billions for stimulus.

The Reserve Bank of New Zealand headquarters in Wellington. Picture: Bloomberg

The Reserve Bank of New Zealand slashed its cash rate by 75 basis points to 0.25 per cent and delayed implementation of higher capital requirements for banks, freeing up billions of dollars for lending as the economy reels from the coronavirus pandemic.

The Reserve Bank said the cash rate will remain at a record low of 0.25 per cent for at least a year. If more stimulus is required, the bank’s preference is purchase government bonds on a large scale rather than cut the cash rate again, it said.

The central bank said higher capital requirements for banks will be delayed by one year or longer, which will free up $NZ47 billion for lending to businesses and households.

Hoping to slow the spread of coronavirus, New Zealand’s government on the weekend imposed two weeks of self-quarantine for everyone who arrives in the country.

International tourism is expected to dry up, causing a significant shock to the economy. The border restrictions will be reviewed after 16 days.

Prime Minister Jacinda Ardern has a “significant” stimulus package will be announced by the government on Tuesday.

The central bank said the pandemic’s negative impact on the New Zealand economy “is, and will continue to be, significant.”

It said demand for the country’s goods and services will be constrained, as will domestic production.

“Spending and investment will be subdued for an extended period,” the bank said.

In delaying new capital requirements for banks, the Reserve Bank said it expects these institutions to maintain lending to businesses and households.

Dow Jones Newswires