(Adds further governor comments)
WELLINGTON, Sept 26 (Reuters) - Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr said on Thursday that it was unlikely the central bank would need to use unconventional monetary policy tools, although it would be negligent not to be prepared for such a scenario.
“Our current view is that we are unlikely to need ‘unconventional’ monetary policy tools. But we would be remiss not to be prepared,” Orr said in a speech in New Zealand that was released by the bank.
The New Zealand Dollar jumped after the comments, rising 0.3% to $0.6292.
Orr said a global low interest rate environment is raising new challenges at central banks and many questions have been asked about the possibility of negative interest rates and alternative monetary policy strategies.
“We are currently thinking hard about these questions, because it makes sense to do so as a precaution - it’s best to put the roof on when the sun is shining,” said Orr.
He said many central banks are facing the challenge of inflation consistently running below target, prompting them to reduce policy rates to stimulate spending and boost demand.
“Some view these low rates as signs of concern. They can also be an opportunity. We are confident that rates will remain low for a number of years, providing a great environment to invest,” said Orr.
New Zealand’s central bank on Wednesday held the official cash rate (OCR) at a record-low 1.0%, as expected, but said there is scope for more fiscal and monetary stimulus to support the economy.
Reporting by Praveen Menon; Editing by Himani Sarkar and Christopher Cushing