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NZ Initiative applauds RBNZ interest rate cut

Contributor:
Fuseworks Media
Fuseworks Media

The New Zealand Initiative welcomes the Reserve Bank of New Zealand’s move to cut interest rates and suspend the tightening of bank capital requirements.

However, the Initiative’s Chief Economist Dr Eric Crampton warns that more will be necessary.

"Even as the RBNZ announced a shift to a 0.25% interest rate and the potential for quantitative easing through purchasing government bonds, the US Federal Reserve cut interest rates to zero while announcing purchases of at least half a trillion dollars of Treasury securities and $US200 billion of mortgage-backed securities," Dr Crampton said.

The Initiative’s Executive Director Dr Oliver Hartwich, added:

"We hope the Reserve Bank is studying the playbook developed during the 2008 Global Financial Crisis. At that time, the European Central Bank used Long Term Refinancing Operations to ensure the continued availability of credit. The ECB lent money to banks at low interest rates over a long term, enabling banks to continue lending as credit markets seized."

"The RBNZ must be nimble over the months ahead. It needs to consider not just reversing its tightening of the bank capitalisation requirements but also easing the conservation buffer, as recommended by Victoria University’s expert on regulatory bank capital Associate Professor Martien Lubberink. The Fed has abolished bank reserve requirements effective 26 March, making it easier for banks to extend liquidity to businesses and households.

"This pandemic effectively puts the world on a wartime footing. We need to be ready for whatever it takes to get through it - for both the health system and the economic response," Dr Hartwich said.

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