The Reserve Bank's emergency 75 basis point cut to the Official Cash Rate was driven by a "very obvious" need - and the priority was to make it deliberate, the bank's Governor says.
Talking to The AM Show on Tuesday, Reserve Bank Governor Adrian Orr said the decision to hold the cash rate at the same level for at least 12 months gives people certainty that long-term interest rates will remain low.
He also said that banks have been given extra credit for lending to help cash flow.
"[Banks] can have an extra $47b of credit available for lending - significantly helping on the confidence and the cash flow for New Zealanders," Orr said.
Although December's announcement that banks must increase their cash reserves signalled the possibility of extra caution before giving loans, they now have less reason not to provide one.
"We've made it clear to the banks that we want them to be well-capitalised, so in times like this, they have petrol in the tank.
"It's time to use it," Orr said.
As the global situation as a result of spread of COVID-19 is changing rapidly, the 12-month hold on interest rates sets a benchmark for markets - but isn't based on how long he expects them to be affected.
"We're operating off scenarios - [they're] evolving all the time," Orr said.
"The 12 months was mostly a signal to financial markets to say that 'if you're setting interest rates longer-term, you won't be going above this number."
Orr said that COVID-19 is a situation that will play out over time. The good news is that institutions are ready, local financial markets are performing well and the government's fiscal package is due to be announced.
"It's very different to the global financial crisis, where we didn't know what was going to happen next.
"This [time], we can see that if we just stay calm and work our way through it, we will move on and come out of it very well," Orr said.
Unlike a shut-down of public systems overseas, New Zealand hasn't experienced a broad spread of the virus and the majority are still turning up for work.
"That's why we're positioning the financial system so that we can have cash flow operating through the country," Orr said.
Ahead of Tuesday's announcement of the Government fiscal package, Orr said there's no doubt it will play a "significant and important role" in seeing the country through, and will add to the range of systems and structures already in place.
"Alot of what we have is automatic stabilisers.
"It has to be both targeted - and we've had every indication it will be - and broad-based.
"The great news for this country is that we have lots of petrol in the tank - our fiscal position is very strong and it's times like this that it can be put to use," Orr said.
Although people may be concerned that interest rates will move to zero or negative, Orr said that monetary policy includes other tools and currently, those are likely to be more effective.
"It's the novelty that concerns people: it feels bizarre that you have to pay to have your money kept in the bank," Orr said.
"We've held the Official Cash Rate positive and we've said 'that's it' - we'd prefer to use other tools.
"Additionally, some banks just aren't ready system-wise to manage negative interest rates," Orr added.
In current turbulent times, a recession - technically defined as two quarters of negative growth - could be on the cards, but Orr is hesitant to call one yet.
"The scenarios we're looking at, they have significant flat periods of negative growth.
"Think hard about that: look after your cash," Orr said.
