In an emergency session from yesterday, the Reserve Bank of New Zealand decided to cut the primary interest rate by 75 basis points. The Official Cash Rate (OCR) is currently at 0.25 per cent, reduced from 1 per cent.
“The negative impact on the New Zealand economy is and will continue to be, significant. Demand for New Zealand's goods and services will be constrained, as will domestic production. Spending and investment will be subdued for an extended period, while the responses to the COVID-19 virus evolve.”
The RBNZ has followed suit to other major central banks globally in reducing the rate of interest and increasing the aggregate money supply circulating within the economy.
The near-negative OCR means that the Monetary Policy Committee (MPC) of the bank is going to have limited alternatives in the future, should the situation continue to worsen.
The only option under their disposal would be to step up the underlying asset-purchasing program, thereby pumping even more capital into the economy’s circular flow.
Meanwhile, the NZD continued to tumble as the global demand for liquid assets bolstered the demand for the dollar. The kiwi is now trading at an 11-years low compared to the greenback.
NZDUSD 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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