The return of the coronavirus to our shores could push the official cash rate into negative territory, a leading economist says.
But that doesn't necessarily mean the bank will be paying off your mortgage for you, ANZ chief economist Sharon Zollner told The AM Show on Friday.
"A negative interest rate would be a wholesale rate - it's very, very unlikely anyone going along to the bank for a mortgage would get paid to borrow money - just as it's unlikely that you would have to pay to put money in the bank.
"There are commonsense constraints on this stuff. It's probably best thought of as an incredibly low interest rate. It would definitely have a downward impact on mortgage rates and other borrowing rates."
The global economic impact of the COVID-19 pandemic is like nothing seen since the Great Depression of the 1930s. New Zealand so far has gotten off relatively lightly, with the virus seemingly stamped out earlier this year and life - and levels of economic activity - largely back to normal.
Its reappearance in Auckland has already cost the city about $150 million, Zollner said, mitigated somewhat by going into alert level 3 rather than the more restrictive level 4.
The Reserve Bank, like many central banks around the world, has kept interest rates low since the global financial crisis of 2008 to encourage economic activity. Savers don't get as much in interest, while borrowers don't have to pay as much back - that's allowed the Government to borrow at record amounts to help ease the economic impact this year.
The bank has also been using a technique called quantitative easing, which increases the amount of money it has available to buy back government bonds. Earlier this week it raised its cap to $100 billion.
But with the risk that might cause inflation, Zollner said negative interest rates might be preferable in the long run.
"This repeated lockdown has made it much more likely, as has what the Reserve Bank had to say this week in their monetary policy statement. They essentially said if their quantitative easing programme isn't enough and they feel they need to provide a bit more stimulus down the track next year, they're looking at a package of a lower or possibly negative official cash rate, combined with lending money directly to banks for them to lend on.
"[Quantitative easing] does fail the common sense test that at some point there must be some consequence - you cannot magic up real stuff out of thin air. The lesson from the last 12 years of economic history are that you can do that, you can print money - the lesson from the longer history of humankind has been that if you print money, you will eventually cause inflation.
"But the issue at the moment is it's very hard to see where that would come from, with demand so weak. When we do finally come out the other side of this... it's going to be very interesting."
Countries with interest rates currently below zero include Denmark, Switzerland and Japan. Others, such as Norway, Sweden and Israel are at 0 percent.
The Government's current debt level is at its highest since the early 1990s.