Logo of Phnom Penh Post newspaper Phnom Penh Post - New Zealand central bank slashes rates as PM warns of recession

New Zealand central bank slashes rates as PM warns of recession

Content image - Phnom Penh Post
New Zealand Prime Minister Jacinda Ardern warned the coronavirus could have a worse economic impact than the global financial crisis. AFP

New Zealand central bank slashes rates as PM warns of recession

New Zealand’s central bank slashed interest rates to almost zero on Monday as Prime Minister Jacinda Ardern warned the coronavirus could have a worse economic impact than the global financial crisis.

The official cash rate, already at a record low of 1.0 per cent, was cut to 0.25 per cent in a surprise move designed to protect New Zealand from a virus-induced recession.

However, markets shrugged off the tactic – with the benchmark NZX 50 closing down 3.56 per cent – and Ardern’s tone was pessimistic when she addressed reporters several hours after the announcement.

“The preliminary advice I received from Treasury this weekend is that the economic impact of the virus on New Zealand could be greater than the global financial crisis,” she said.

Pressed on whether that could mean a recession, as occurred in 2008, Ardern replied: “Well, based on that advice, obviously, because the GFC led to a recession.”

Ardern’s government is set to unveil on Tuesday a multi-billion-dollar stimulus package, which the Reserve Bank of New Zealand said would complement its rate cut.

The bank was not scheduled to make a monetary policy announcement until March 25 but acted early because of “the rapidly deteriorating economic situation relating to Covid-19”.

The bank warned “the negative impact on the New Zealand economy is, and will continue to be, significant”, pointing to curtailed global trade, travel and consumer spending.

New Zealand has just eight confirmed coronavirus cases and no fatalities, for a population of nearly five million.

The government on Monday barred events of more than 500 people and restrictions kicked in forcing all international arrivals to self isolate in a bid to slow the virus’ spread.

BNZ’s Stephen Toplis said the travel restrictions announced were a “game changer” that locked in a deep recession.

“But it just had to be done,” he said in a note to clients, estimating the impact on tourism and airports alone would wipe 2.0 per cent off gross domestic product.

He warned the first nine months of 2020 could see New Zealand’s economy endure “one of the sharpest drops in living memory” and there was little the central bank could do about it.

“We don’t think lowering interest rates will make any difference to economic outcomes whatsoever in the current environment,” he said.

“Under the pressure of global financial markets, the bank felt it simply had to move and move big.”

Toplis expected Tuesday’s government stimulus package to be worth NZ$15.0-20.0 billion ($9.0-12.0 billion).

He said the government balance sheet had the capacity to deliver the huge spending boost but it needed to be carefully targeted for maximum effectiveness in unprecedented circumstances.

“It’s time to batten down the hatches. This is going to be a very rough ride,” he said.

MOST VIEWED

  • Seven positive for Covid-19, Hun Sen confirms local transmission

    Prime Minister Hun Sen announced that there has been local community transmission of Covid-19. However, he urged the people not to panic even though the Ministry of Health announced the discovery of seven new cases on Sunday. Among the victims are Chhem Savuth, the director-general

  • Cambodia at ‘most critical moment’, Hun Sen warns

    Prime Minister Hun Sen said the first community transmission of Covid-19 in Cambodia has led the country to the “most critical moment” that warranted urgent, large-scale operations to contain the pandemic. Hun Sen, who confirmed the first local transmission on November 28, said the source of

  • PM confirms community transmission, calls for unity

    Prime Minister Hun Sen has called on the public to stay calm, unite and follow the Ministry of Health guidelines after the wife of a senior official tested positive for Covid-19 in the Kingdom’s first case of community transmission. The case has drawn criticism

  • Over 110 garment factories close

    A government official said on November 22 that at least 110 garment factories had closed in the first nine months of the year and left more than 55,000 workers without jobs – but union leaders worry those numbers could be much higher. Ministry of Labour and Vocational Training undersecretary

  • Singapore group seeks $14M in damages from PPSP over ‘breach of contract’

    Singapore-based Asiatic Group (Holdings) Ltd is seeking a minimum of $14.4 million relief from Cambodia Securities Exchange (CSX)-listed Phnom Penh Special Economic Zone Plc (PPSP) for allegedly breaching a power plant joint venture (JV) agreement. Asiatic Group’s wholly-owned Colben System Pte Ltd and 95 per

  • PM vows to protect Hun family

    Prime Minister Hun Sen has vowed to continue his fight against opposition politicians who he said intend to smash the Hun family. Without naming the politicians but apparently referring to former leaders of the Supreme Court-dissolved Cambodia National Rescue Party (CNRP), Hun Sen said there