MNI INTERVIEW: Negative Rates An Option After FLP: RBNZ Yuong

The New Zealand economy still requires monetary stimulus and Wednesday's announcement of an NZD28-billion funding for lending program has given the central bank the option to introduce negative interest rates next year, said Yuong Ha, chief economist at the Reserve Bank of New Zealand.

The FLP, which will offer low cost funding to commercial banks from December, was always seen as a precursor to negative rates, Yuong told MNI, although he added that he "can't say categorically" that negative rates would be introduced.

"We always wanted to have options and now the FLP gives us that," he said, adding that the RBNZ would assess the economic situation at its February and March meetings to determine if negative rates were still required.

TRANSMISSION

Yuong said retail rates had started to come down in advance of the FLP announcement as commercial banks anticipated the move, a sign that monetary policy was being successfully transmitted.

The RBNZ lowered official rates to a record low 0.25% in March this year and reaffirmed Wednesday it would hold the rate for a year before making another move.

The RBNZ also said it would consider re-introducing Loan to Value Restrictions (LVR) for housing loans but has postponed higher capital requirements for banks until 2022.

House prices have hit new records in recent months but Yuong said the RBNZ "did not have a view" on the housing market.

The bank wanted to encourage lending, but also wanted to limit the number of risky loans in the market as they posed a threat to financial stability.