RBNZ Orr: Has not, and still does not, need to use alternative monetary policy instruments

Reserve Bank of New Zealand governor Adrian Orr says has not, and still does not, need to use alternative monetary policy instruments. The speech does not discuss current economic conditions, outlook for the official cash rate.

Key notes

• Says but it is best to be prepared.
• Fortunate, unlike many other OECD economies, to have time to prepare for alternative steps.
• Goal of steps would be to ensure a strong and sustained increase in economic activity.
• To release a series of technical papers explaining the tools in more detail.
• Says effective zero bound for rates is far from most likely outcome, can’t be ruled out.
• says steps being considered include forward guidance, negative rates, rate swaps.
• Says could purchase domestic government bonds to lower rates, flatten yield curve.
• Says possible steps include purchase of foreign currency or assets to reduce the NZD exchange rate.
• Says could provide collateralised long-term loans to banks to support policy.
• All tools would be more effective when combined with government measures.
• Will need to account for international monetary and fiscal responses at next policy meeting.
• Orr says need to be considered and realistic as to how effective any potential change in rates will be in buffering the economy.
• Will continue using conventional policy until it is exhausted, i.e. when the OCR reaches zero.

More to come