Governor acknowledges COVID-19’s impact on New Zealand’s economy
Rumours about an out-of-cycle official cash rate (OCR) cut due to the COVID-19 (coronavirus) outbreak have been circulating in the industry – prompting the Reserve Bank of New Zealand (RBNZ) to reiterate that its next OCR review would still push through on March 25.
“The outlook for our OCR is the task of our Monetary Policy Committee, whose next assessment is scheduled for March 25,” RBNZ Governor Adrian Orr said on his speech regarding the central bank's potential use of monetary policy tools.
However, Orr acknowledged the outbreak’s impact on New Zealand’s economy that may have prompted the emergency cut rumours.
“The eventual economic impact of the coronavirus on global supply and demand will depend on the location, severity, and duration of the outbreak,” he said. “The severity of its economic impact depends on how the coronavirus is contained and controlled; how long it would persist; and the response of governments, consumers, and investors to these events.”
“The Monetary Policy Committee will look into these supply and demand issues. We need to account for international monetary and fiscal responses, financial market price changes, and domestic fiscal responses and intentions to inform our response.”
Read more: Reserve Bank unlikely to announce out-of-cycle cut – experts
Orr confirmed that they have been discussing with the Treasury regularly to determine how monetary and fiscal policy can be best coordinated.
“We need to be realistic as to how effective any potential change in the level of the OCR will be in buffering the New Zealand economy from shocks such as a lack of rainfall and the onset of a virus,” he explained.
“For us, the decisions regarding monetary policy and financial stability are repeat processes as the duration and severity of events play out. We are in a sound starting position with inflation near our target mid-point, employment at its maximum sustainable level, already stimulatory monetary conditions, and a sound financial system.”
