NZ central bank says keeping stimulus longer better than taking away too soon

New Zealand's central bank held interest rates last week but hinted at a hike as early as September next year. PHOTO: REUTERS

WELLINGTON (REUTERS) - The Reserve Bank of New Zealand (RBNZ) would prefer to have monetary stimulus in place for a longer period of time than take it away too quickly, a senior official said on Monday (May 31).

RBNZ Assistant Governor Christian Hawkesby said the implications of the Covid-19 pandemic were not yet over so the amount of monetary stimulus needed was little changed from February.

"Our messages around having stimulus in place for a considerable period of time, being patient and our least regret is keeping stimulus in place for too long rather than taking it away too quickly, all of those messages stay in place," Mr Hawkesby said in an interview.

New Zealand's central bank held interest rates last week but hinted at a hike as early as September next year, becoming one of the first advanced economies to signal a move away from the stimulatory settings adopted during the Covid-19 pandemic.

Mr Hawkesby said RBNZ felt it was the right time to re-introduce projections of the official cash rate (OCR) as the main policy signal for markets to focus on.

The bank's positive outlook, driven by a faster-than-expected domestic recovery from the pandemic and the global vaccine roll-out, prompted the New Zealand dollar to strengthen.

Mr Hawkesby said RBNZ was aware there were risks in publishing the OCR track as the markets would tend to get ahead of the bank's bias when it came to pricing in tightening.

"We also had awareness that it will take some time for markets to remember that these are conditional projections," he added.

Mr Hawkesby said that the resurgence of Covid-19 in Australia and other Asian countries was a reminder of the level of uncertainty that still remains.

"The recent outbreaks illustrate there is light at the end of the tunnel but there is still much uncertainty on the path we take to get there. So it could be faster or slower," he said.

Join ST's Telegram channel and get the latest breaking news delivered to you.