MNI INTERVIEW: Negative Rates Or QE If Needed: RBNZ Asst Gov

--Further Cuts, Negative Rates, QE And Forex Action All Options: Hawkesby

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of New Zealand is prepared to cut rates

into negative territory and consider additional measures such as quantitative

easing and forex intervention "if and when there is a negative shock" to the NZ

economy, a senior bank policymaker told MNI.

     "We haven't ruled out taking rates into zero territory and we are still

working through the policy options about how far you would cut the Official Cash

Rate until you stopped," RBNZ Assistant Governor Christian Hawkesby said Friday.

     "We haven't ruled out taking the OCR negative, and this seems like the most

conventional of the unconventional policy options, and we have left open the

whole range of things central banks can do, from intervening in foreign exchange

markets to asset purchases of both government and non-government assets," he

added.

     --OVER-DELIVER

     The RBNZ surprised markets in August with a 50bps cut, taking rates to a

record low 1%. That, along with government fiscal measures, will boost the

economy, increasing the chances of hitting the central bank's targets, the

Bank's senior economist believes.

     "Our thinking was 'do we want to still be struggling in 12 to 18 months to

get to that 2% inflation target, or would we be more comfortable with inflation

tacking higher than that 2%?" said Hawkesby.

     The board decided on the larger cut as the "best chance" of more rapidly

achieving its 1- 3% target range for inflation. Inflation is now at an

annualised 1.7%.

     "We believed that a larger cut also reduces the possibility that we will

need unconventional tools," he added.

     "Our view was that an interest rate cut of this size and stimulus now is

going to support the economy and provide some positive momentum and put it into

a better position.

     "Given our assessment of the domestic and global economies, our view was

that we were moving away from our targets (on inflation and employment) on both

fronts, and that is what prompted the strategy," he said.

     Overall, New Zealand is in "good shape", particularly with unemployment

dipping to 3.9% in the second quarter, but, as a "small open economy", it is

particularly vulnerable to any downturn in global economic conditions, Hawkesby

said.

     The RBNZ has modelled a range of scenarios with "unconventional tools."

Models indicated that a cut of 60 basis points was needed for the economy to

achieve the Bank's targets in August, theoretically leaving 10bps of easing

still needed.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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