New Zealand’s Robertson Downplays Direct Monetary Financing

(Bloomberg) -- New Zealand Finance Minister Grant Robertson has downplayed the prospect of the central bank monetizing government debt, saying its approach to quantitative easing is working.

“At the moment the bond markets are continuing to function and operate well in New Zealand,” Robertson said in a Bloomberg Television interview on Friday. “Clearly the Reserve Bank is involved in the secondary market and that is continuing to operate. Liquidity levels are good within the banking sector, and so for now the approach that we’re taking I believe is correct and right.”

While he would “never say never” on other approaches, “we’re comfortable with where we are,” Robertson said.

Reserve Bank Governor Adrian Orr this week said he was “open minded” on the concept of buying debt directly from the government despite the risks involved. The RBNZ has a NZ$33 billion ($20 billion) QE program in place and has said it will consider the case for additional monetary stimulus at its next policy meeting on May 13.

The government is preparing a budget for May 14 that will focus on how the economy recovers from the coronavirus pandemic, including packages targeted at particular sectors, Robertson said. He was cautious about proposals for direct payments to households, or so-called helicopter money, as a means of stimulating spending.

“We need to be thinking about when stimulus would have its best effect,” he said. “When consumers are feeling gun shy and restricted in what they actually can do and buy, that’s probably not the best time. We’ll continue to look at our options for that.”

Robertson said further government support “will be substantial” without giving any details.

The government has maintained low levels of debt compared with global peers so is now able to increase borrowing and still keep its debt-to-GDP ratio relatively within check, he said.

“One of the reasons we’ve kept it low is because we have tended to be susceptible to global economic shocks and also natural disasters,” he said. “We do this so we’re ready for a rainy day, and it’s pouring outside. We’ll continue to be careful with our spending, but as most countries around the world have done we’ve put in substantial support packages already and there will be more to come.”

New Zealand faces its biggest economic contraction in history in the three months through June after it entered a nationwide lockdown and closed its borders in response to the pandemic. Visitor arrivals stalled and some tourism businesses have been pushed to the brink of collapse. While the lockdown restrictions will start to be eased on Tuesday, the government has given no indication of how long border controls will remain.

“Those border restrictions are going to be in place for a significant period of time,” Robertson said. “Clearly our tourism industry is going to be significantly affected. New Zealand will need to be looking to other sectors to pick up the slack.”

Asked about the prospect of a resumption in travel between New Zealand and Australia, Robertson said both countries have “done very well in terms of getting on top of the virus” but still have work to do.

“We’re some distance off that from New Zealand’s perspective,” he said. “But clearly we would like to work towards a time when we do reopen those borders.” Adding, “Australia and us have got fairly easy flow of people in any case, so that would be something that we would like to keep working on and looking at.”

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