Findings will help refine the design and deployment of the bank's tools
In a recent bulletin, the Reserve Bank (RBNZ) has revisited its actions to uphold financial market functioning during the onset of the COVID-19 pandemic in 2020.
The bulletin outlined the factors leading to dysfunction in key NZ dollar financial markets and analysed the measures deployed by RBNZ to address the challenges, drawing on data and interviews with participants in the New Zealand dollar financial markets.
Key points from the bulletin include:
- The COVID-19 pandemic triggered a swift deterioration in global and domestic financial market conditions in March and April 2020.
- Dysfunction in the NZD/USD foreign exchange swap market was influenced by a sharp appreciation of the US dollar, causing liquidity issues and surging borrowing costs.
- In the secondary market for nominal New Zealand government bonds, intermediation constraints and market risk limits contributed to a breakdown in liquidity, hindering price discovery and trade execution.
- RBNZ’s actions during March and April 2020 were deemed timely and effective, helping restore liquidity to the NZD/USD FX swap market and key bond markets in New Zealand.
- Market participants acknowledged the importance of the early months of the Large Scale Asset Purchase program in restoring market functioning during the initial phase of the COVID-19 crisis.
“Our analysis highlights key observations and next steps that will help to refine the design and deployment of the tools we use to support financial market functioning,” RBNZ said in a media release. “This will help to shape the next phase of the Liquidity Management Framework Review that we are currently undertaking.”
For more details, download the bulletin: In retrospect: RBNZ’s support of financial market functioning at the onset of COVID-19.
To read more news about RBNZ, click here and here.
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
