SYDNEY, May 23 (Reuters) - The Reserve Bank of New Zealand has “significant further room” to ease monetary policy and is prepared to undertake large-scale asset purchases in case of a major financial crisis, it said in a research paper on Wednesday.
In an interview with Bloomberg following the release of the paper, RBNZ Assistant Governor John McDermott said the central bank could turn to five policy tools, which included so-called quantitative easing and negative cash rates, in the event of a massive economic shock.
The New Zealand dollar slipped by more than a quarter of cent to $0.6912 on the news, from a one-week top of $0.6974 touched on Tuesday.
“This is all about planning for the future,” McDermott told Bloomberg after the RBNZ published its research paper on implementing unconventional monetary policy in New Zealand.
While there’s “no imminent prospect” of using such measures, “the probability of needing them at this point in the cycle is higher than it ever was in history” and “it would be silly of us not to be ready just in case.”
The RBNZ has studied the unconventional policies used by central banks abroad to determine which ones would be appropriate for New Zealand, McDermott told Bloomberg.
Their use would require a very large shock to the economy, “like another global financial crisis or a bigger Asian financial crisis embodying China, something that really has a big impact,” he added.
The RBNZ came out of the global financial crisis without having to push rates to zero or in negative territory, unlike its peers in Europe, Japan and the United States.
The RBNZ last cut rates to a record low 1.75 percent in late 2016 and has repeatedly indicated the need for policy to remain stimulatory as inflation remains tepid. (Reporting by Swati Pandey; Editing by Sam Holmes)