Negative Rates Not Likely for New Zealand, Finance Minister Says

(Bloomberg) --

New Zealand’s slowing economy will likely respond to policy makers’ efforts to rekindle growth and the central bank is unlikely to have to resort to unconventional policy, said the country’s finance minister.

“There’s still a little bit more room to move in terms of monetary policy in New Zealand,” Grant Robertson said in a Bloomberg Television interview from Auckland Tuesday. “My belief is that the economy will respond to the monetary policy work that’s been done” as well as fiscal policy, he said, adding that negative interest rates would be “very much uncharted territory.”

Doubts have emerged about the outlook for New Zealand’s economy amid a slump in business confidence and ongoing global trade tensions, which have prompted the Reserve Bank to cut its benchmark interest rate to a record-low 1%. Gross domestic product rose an annual 2.5% in the first quarter and economists predict it will slow to just 2% this year.

With markets pricing a high chance of the cash rate falling to 0.75% before the end of 2019, analysts are bracing for the risk of unconventional monetary policy measures. That could include negative interest rates or quantitative easing in New Zealand for the first time.

“We’ll continue to keep an eye on that,” said Robertson. “At this stage, I don’t see us getting there.”

Reserve Bank Governor Adrian Orr last month said unconventional policies were in the realms of possibility, and Treasury has been briefing Robertson on the sort of crisis measures that may be required.

The nation “will see solid economic growth but there will be periods of stress that we need to see our way through,” Robertson said later Tuesday at a Bloomberg Address event. “The trend in the global economy is obvious and for a small, open, export-based economy such as New Zealand, we will not be unaffected by that.”

Robertson has come under pressure to loosen fiscal policy as Orr urges business and the government to step up investment in order to inject more life into the economy.

He said the government increased spending in the May budget and that “will have a significant effect on the economy as it rolls on.”

The government operates under so-called budget responsibility rules that require it to forecast budget surpluses and commit to reducing net debt to 20% of gross domestic product by June 2022.

Robertson reiterated he is able to relax those rules if there is an economic shock or a natural disaster.

“We need to be prepared to move if we have to,” he said. “I do not believe that we are at that stage yet.”

--With assistance from Jason Scott and Chris Bourke.

To contact the reporters on this story: Haslinda Amin in Singapore at hamin1@bloomberg.net;Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editors responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net, Edward Johnson

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