Reserve Bank (RBNZ) Chief Economist Yuong Ha says there’s no evidence to suggest we’re hitting a tipping point where cutting interest rates no longer stimulates the economy.
Speaking to interest.co.nz following the RBNZ’s shock decision to cut the Official Cash Rate (OCR) by twice as much as expected to 1%, Ha said: “The world may be changing around us - changing in very different ways, and we may have to react differently.
“But the bottom line is, interest rates still affect investment and spending decisions the way they always have.
“We looked at some international work and our own recent work and there’s no evidence to suggest that policy is any less effective at these low interest rates.”
Ha expected the RBNZ to publish research on this issue in the next two months.
“We have been watching and we will continue watching how OCR changes are feeding through to retail deposit rates and hence economic activity, but the work[ing] assumption is, it’s business as usual.”
Ha said that with the average size of deposits across households being about $100,000, and the average mortgage being $400,000, interest rate cuts would affect borrowers much more than they’d affect savers. So the net effect would be stimulatory.
He said negative interest rates were in the “realms of possibility” even though they weren’t in the RBNZ’s forecasts at present.
Ha wouldn’t be drawn on how much lower he believed banks would cut lending rates in an even lower, or negative, interest rate environment.
He said the RBNZ’s work on what tools it could employ, like quantitative easing, was “ongoing”.
Pushed on how the public was meant to have confidence in what is largely an unknown in the New Zealand context when due to market sensitivity the RBNZ can’t detail its options, Ha assured the central bank was “on the game”.
For more on the RBNZ's rationale, watch the interview and see this story written further to press conference following the OCR cut.