The Covid-19 pandemic will have a "severe impact" on the economy and the Reserve Bank has modelling to suggest New Zealand is on the cusp of a recession.
The central bank this morning warned it expected to see a rise in unemployment and more business failures as the impact of the disease's spread hits the economy.
But, speaking to media this morning, Reserve Bank governor Adrian Orr said New Zealand was in the "best possible" position to respond to the impending economic downturn.
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This comes a day before the Government is due to unveil a "multi-billion" dollar stimulus package to help support the economy.
This morning, the Reserve Bank delivered a shock 0.75 per cut in the official cash rate – a move not seen in New Zealand since the days of the global financial crisis.
It means New Zealand official cash rate (OCR) is now a record low 0.25 per cent.
And Orr made it clear this morning that the OCR would not be going any lower, and was highly likely to – as has been the case with some central banks – go into negative territory
Instead, the Reserve Bank said that, if needed, it would pump more money into the economy by lending money to the Government.
"These are unusual times for the New Zealand economy," he said.
Orr added that there would be a "significant" impact on New Zealand's economy and added that spending will be subdued for a while.
His deputy governor, Geoff Bascand, put it even more bluntly during this morning press conference.
"We do expect this to be a severe impact on the economy … this is going to spill through to some more unemployment and business failures."
But Bascand was not able to quantify this damage.
Orr was quizzed on the likelihood of New Zealand going into a recession – technically defined as two negative quarters of GDP growth.
He said it was "academic" to worry about if the technical name for the downturn was a recession.
"There is going to a period of very weak economic activity … if it's a recession, it's a recession."
Pressed further Orr said in some of the Reserve Bank scenarios, "have more than two negative quarters of growth".
This comes as both ANZ and BNZ forecast a "deep recession," as a result of the Government's new travel restrictions, introduced over the week.
"It's time to batten down the hatches. This is going to be a very rough ride," said BNZ head of research Stephen Toplis.
In the meantime, Orr urged all Kiwis to talk to their banks as interest rates fall in response to the coronavirus challenges facing the economy.
All the major banks reduced their interest rates after today's OCR announcement.
Orr urged all New Zealanders to talk to their banks – "this is the time to over-communicate".
He also said consumers should "think wisely" about how they use their cash in "in these times".