CNN's Richard Quest interviews NZ Reserve Bank Governor Adrian Orr about monetary policy in the face of the Covid-19 pandemic.
CNN's Richard Quest interviews NZ Reserve Bank Governor Adrian Orr about monetary policy in the face of the Covid-19 pandemic.
New Zealand's Reserve Bank isn't taking anything for granted - it's braced for the worst-case scenario of a move back to lockdown.
Reserve Bank Governor Adrian Orr spoke to CNN's Richard Quest on Quest Means Business this morning.
The interview followed the news that Covid-19 was back nNew Zealand after two women had tested positive after arriving from the UK to see a dying relative.
Orr said a challenge everyone around the globe faced was remaining on alert even when the virus was contained.
After explaining to viewers the debate in New Zealand about whether to open up the economy further, Quest told Orr he wouldn't "enmesh" him in that political debate.
"But I am going to ask you, how concerned you are that if the economy did have to be restricted again, what the effect would be on the economy," Quest said.
"The simple answer is very concerned," Orr said.
"This is the challenge that everyone globally has - whilst you can contain this virus, you have to remain on alert."
Orr told Quest the Reserve Bank had strictly avoided making specific predictions in setting its monetary policy - instead modelling scenarios that saw the country shifting between different constraint levels were the virus to break out again.
Asked who bore the brunt of keeping the economy going, Orr said that "without doubt" it was the Government's fiscal policy - government expenditure, investment, training and infrastructure - that would be at the forefront of the recovery from the economic shock of Covid-19.
"Monetary policy is very much the poor cousin in the efforts that we're making. Having said that, the efforts [the Reserve Bank is making] are extremely significant.
"We're quantitative easing - as are many other countries' central banks around the world - and we have interest rates at or near zero and a very flat yield curve.
"But our challenge for monetary policy is you can't force people to borrow and you can't force people to lend, so really it's about direct spending, direct investment, the wage subsidies, the labour mobility capability - it is all fiscal policy."
As New Zealand faces its first new coronavirus cases in weeks, Reserve Bank of New Zealand Governor Adrian Orr said “monetary policy is very much the poor cousin” of fiscal policy in terms of its ability to keep the economy going pic.twitter.com/r9Gn7Z1XEr
The Reserve Bank was confident it had plenty of tools at its disposal and had been very pleased with the impact quantitative easing had had, Orr said.
"We've seen interest rates come down and the yield curve flatten; that's had the impact we were anticipating across the economy."
The next tool in the toolbox could be increasing the size of quantitative easing - but negative interest or wholesale rates had also not been ruled out.
"There, operationally, some banks are not ready but we've said get ready," he said. "That's really about optionality, it's not signalling."
Beyond that, the Reserve Bank could also provide much longer-term lending to banks.
"We're also sure that we aren't the main game in town - it will be about fiscal policy," Orr said.
"If you're going to enter a crisis like we're in, New Zealand is a good place to enter it from. Not just geographically but also we had very low unemployment, high employment, high engagement, inflation above the midpoint and especially our fiscal position was very strong.
"So even with all of this fiscal spending the Government is still talking about being around 50-60 percent debt to GDP, if they have to deploy everything on the table."
Quest pointed out many countries would be "salivating" at the prospect of that debt to GDP ratio.
