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WELLINGTON, New Zealand–The Reserve Bank of New Zealand said it will double purchases of government bonds, aiming to keep market interest rates low as state borrowing swells to counter a severe economic downturn.
The central bank on Wednesday reiterated that its cash rate will remain at 0.25% until March 2021 as government measures to control the coronavirus cause the economy to shrink. The bank cut the rate by 75 basis points two months ago.
Purchases of New Zealand government bonds will be increased to 60 billion New Zealand dollars ($36.3 billion) from the previously planned NZ$30 billion. It left purchases of regional government bonds unchanged at NZ$3 billion.
The Reserve Bank said it’s prepared to lower the cash rate or add other types of assets to its bond purchase program if needed.
It said asset purchases so far have reduced the cost of borrowing quickly and sharply.
“This is preferable to delivering a smaller amount of surplus now, only to risk later realizing more should have been done,” the central bank said.
New Zealand’s government has spent about NZ$20 billion, or approximately 6.0% of gross domestic product, in responding to the pandemic with wage subsidies and other measures. It’s expected to outline further spending on Thursday when the annual budget will be released.
The economy will contract 8.4% in the year to March 2021, the Reserve Bank said.
Write to Stephen Wright at [email protected]
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