NZ recession "obvious" as cash rate cut

The Reserve Bank of New Zealand has slashed the country's Official Cash Rate to just 0.25 per cent, down from 1.0 per cent.

That measure won't stop COVID-19 pushing New Zealand into a "guaranteed recession" according to banks, which quickly passed on the cut to personal lenders.

Prime Minister Jacinda Ardern also gave her own grave prediction for the economy, based on preliminary Treasury advice.

"The economic impact of the virus on New Zealand could be greater than the impact of the global financial crisis," she said.

"Based on that advice, obviously (a recession is coming).

"The difference of course is there is no existing playbook for the economic response here."

The New Zealand economy contracted by 3.3 per cent in the March 2008 quarter, by 0.3 per cent in the June 2008 quarter, and has been in positive territory since - the country's longest run of uninterrupted growth.

The government's fiscal response will come on Tuesday, in the form of a multi-billion dollar stimulus targeted towards business and maintaining employment.

The Reserve Bank (RBNZ) gave the monetary policy call to drop to 0.25 per cent on Sunday at an emergency meeting, a rate that will be locked in for 12 months.

The Official Cash Rate (OCR) is the lowest in New Zealand's history.

In response, New Zealand's currency and stock market continued downward moves on Monday.

The benchmark NZX50 plunged five per cent before rallying to close 3.5 per cent lower than the day's opening.

The NZ dollar also fell to an 11-year low against the US dollar, valued below 60 US cents briefly before rebounding to be 60.6 US cents at 6pm NZDT.

The NZ dollar currently buys 98 Australian cents.

With a recession now understood by government and business alike, it's just a matter of how deep, and how long it lasts.

ANZ New Zealand chief economist Sharon Zellner said "a domestic recession is guaranteed, and it won't be shallow".

ASB chief economist Nick Tuffley said the government's decision to implement mandatory self-isolation for international arrivals "will heavily impact on the tourism sector and push NZ into recession".

RBNZ governor Adrian Orr shared that gloomy outlook without a similar prediction, instead suggesting a few reasons for positivity.

"New Zealand's financial system remains sound and our major financial institutions are well capitalised and liquid," he said.

"The government is operating an expansionary fiscal policy and has imminent intentions to increase its support with a fiscal package to provide both targeted and broad-based economic stimulus."

Mr Orr said the RBNZ is not contemplating negative rates.

The RBNZ agreed "should further stimulus be required, a large scale asset purchase program of New Zealand government bonds would be preferable to further OCR reductions".

The RBNZ has also put off new requirements for banks to hold more capital, which it believes will support the availability of credit.

Austrlaian Associated PressBack to Breaking News

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