Orr Says RBNZ ‘Ready to Act Further,’ Has Firepower in Reserve

(Bloomberg) -- New Zealand central bank Governor Adrian Orr said the bank has additional firepower at its disposal to keep the financial system functioning and noted its ability to make large purchases of government bonds.

“We are ready to act further, with more firepower in reserve to keep the financial taps turned on,” Orr wrote in an opinion article in the Sunday Star Times newspaper. “Our Monetary Policy Committee signaled that large-scale asset purchases of New Zealand government bonds can be used when further stimulus is required.”

He said this involves “the Reserve Bank buying government bond holdings in the secondary market in return for cash, thereby reducing longer-term interest rates which are important for mortgage and business lending.”

The RBNZ is under mounting pressure to take the historic leap to quantitative easing as the coronavirus pandemic roils financial markets around the world and recession looms. Bond yields have soared on the prospect of increased debt issuance by governments as they look to fund massive fiscal spending packages to counter the economic slump.

The RBNZ on Friday announced a range of measures including term loans for banks in an attempt to ease tensions in funding markets. Assistant Governor Christian Hawkesby said the central bank was very aware of rapidly evolving events and that QE was its next stimulus tool.

In his article, Orr said there will be hard times ahead for some households and firms.

“Some people will lose their jobs, some firms will go out of business, while other businesses will thrive over time and new firms will emerge,” he said. “New Zealanders can be assured that the Reserve Bank has their backs, and is committed to do what it takes to support the functioning of the economy in times of uncertainty.”

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