RBNZ is expanding bond purchases to aid recovery

Bloomberg

New Zealand’s central bank expanded its quantitative easing program and said it’s open to cutting interest rates into negative territory as a new coronavirus outbreak threatens the economic recovery.
The Reserve Bank increased its Large Scale Asset Purchase program to as much as NZ$100 billion from NZ$60 billion, and extended it until June 2022, according to a statement on Wednesday in Wellington. Policy makers maintained the official cash rate at a record-low 0.25% and said they are prepared to use additional monetary policy tools such as negative rates if required.
“A package of additional monetary instruments must remain in active preparation,” the RBNZ said. “The package of further instruments includes a negative OCR supported by funding retail banks directly. Purchases of foreign assets also remain an option.”
New Zealand’s economy has performed better than expected after the country’s initial success in wiping out the coronavirus. But the emergence yesterday of the first local cases in more than three months has dealt a blow to the outlook as largest city Auckland is placed back into lockdown. With the pandemic continuing to rage globally, the central bank said risks are skewed to the downside.
“It’s difficult to imagine a more dovish outcome than what we have seen,” said Sharon Zollner, chief New Zealand economist at ANZ Bank in Auckland. “The RBNZ expressed a strong openness to provide more stimulus if necessary. The bad news delivered last night has ramped up uncertainty, but certainly done nothing to reduce the odds of further OCR cuts next year.”
The New Zealand dollar fell to a one-month low after the announcement. It fell as low as 65.25 US cents before recovering to 65.44 cents at 4:12 pm in Wellington.
Bond yields and swap rates fell.
The country’s run of 102 days without community transmission ended late yesterday with the announcement that four new cases had been detected in an Auckland household. A further four probable cases were identified today, and authorities are racing to find the origin of the outbreak.
Asked at a news conference about the impact of the new cases and Auckland’s lockdown, Governor Adrian Orr said the policy decision was finalized today but the outbreak didn’t alter it.