COVID-19: RBNZ has 'no intention' of increasing interest rates - Adrian Orr

Interest rates will remain low for the foreseeable future, the Reserve Bank Governor says, while negative rates are still an option as New Zealand's economy recovers from COVID-19.

Speaking to The AM Show on Tuesday, Reserve Bank Governor (RBNZ) Adrian Orr said the Official Cash Rate (OCR) won't go up anytime soon.

"The game here is monetary stimulus, without [a] doubt. The OCR - of 0.25 - we've committed for at least 12 months but we didn't just stop there, we then began what we call quantitative easing.

"Our task is to make sure interest rates decline - we can only push the wholesale interest rates down and we've succeeded in that. Retail interest rates have followed - they took a while but they are following now."

The central bank would be making it clear to the banks it's in their best interests to pass on those lower borrowing costs to consumers' mortgage rates, Orr said.

"We have no intention of raising interest rates. Our task now and for the foreseeable future is; get them down, keep them down."

Asked by host Duncan Garner if the RBNZ could eventually implement negative wholesale interest rates, Orr didn't rule it out.

"We could," Orr said. "We've been saying to banks, 'get your act together, be prepared, make sure you're able to put a negative sign in front of your wholesale interest rates if we need to go there'."

Adrian Orr.
Adrian Orr. Photo credit: Getty

New Zealand's exit from COVID-19 lockdown came sooner than many countries, which has lifted retail spending and economic activity. Orr said the rest of the world needed to get into the same shape as NZ so full trade and tourism could resume.

"At the moment, I'd say we are in one of the best positions globally," Orr said.

"Our core projections say about 2022 - we might be back around the level what we would consider full employment [and] full activity."

The RBNZ is continuing to prepare for uncertainty in the coming months, Orr said.

"In terms of current activity, we've seen a really good rebound now we've been released from our cages - we're back out on the streets, there's a lot of pent-up consumption happening but it's really just the end of the beginning."

The RBNZ will provide a monetary policy statement in August.

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