New Zealand COVID-19 Stimulus Package And Government Response
Reserve Bank of New Zealand
On 16 March the Reserve Bank of New Zealand (RBNZ), the country's central bank, lowered its Official Cash Rate from 1.0% to 0.25% and said it would remain at that level "for at least the next 12 months."[1]
The RBNZ announced that it would delay by 12 months the start date of increased capital requirements for banks until 1 July 2021, and said it would consider further delays after that if conditions warrant it. The bank also said it expects the action will enable lenders to provide an extra NZ$47 billion of credit to businesses and consumers.[2]
On 18 March the RBNZ said it would "delay or slow down" most of its regulatory initiatives for at least six months in order to "reduce the regulatory impact on financial institutions."[3]
Term Auction Facility
On 20 March the RBNZ announced a Term Auction Facility (TAF) in which it will provide banks with collateralised loans of up to 12 months in order to "provide confidence that the Reserve Bank stands ready to support the market if needed." The bank also said it would provide liquidity in the foreign exchange swap market and reestablish a temporary U.S. dollar swap line with the U.S. Federal Reserve to support U.S. dollar liquidity to the New Zealand market up to US$30 billion.[4]
Large Scale Asset Purchase Programme
On 23 March the bank's Monetary Policy Committee (MPC) announced the creation of a Large Scale Asset Purchase programme (LSAP) in which it will buy up to NZ$30 billion of New Zealand government bonds in the secondary market over the next 12 months.[5]
On 7 April the RBNZ said it would buy up to NZ$3 billion of Local Government Funding Agency (LGFA) debt as part of its LSAP, thus increasing the size of the total programme to NZ$33 billion over 12 months.[8]
On 13 May the bank's Monetary Policy Committee agreed to nearly double the size of the LSAP to NZ$60 billion from NZ$33 billion.[10] On 12 August the MPC further increased the programme to $100 billion.[11]
Business Finance Guarantee Scheme
On 24 March the Reserve Bank, the government and retail banks announced a NZ$6.25 billion Business Finance Guarantee Scheme to provide short-term credit to small and medium-sized businesses. The programme will provide three-year loans up to NZ$500,000, with the government carrying 80% of the credit risk and banks carrying the other 20%. The package also includes a six-month payment holiday for mortgage borrowers and small business borrowers affected by the pandemic. To help banks make credit available the Reserve Bank reduced lenders' core funding ratios from 75% to 50%.[6]
On 2 April the bank announced a new Term Lending Facility (TLF) to support the Business Finance Guarantee Scheme. The TLF is similar to the TAF but will provide funding to banks at low interest rates for up to three years. The bank also announced that it had reached an agreement with the country's banks in which they would not pay dividends to shareholders during the crisis.[7]
Mortgage Payment Changes
On 30 April the RBNZ said it would remove mortgage loan-to-value ratio (LVR) restrictions for 12 months in order to facilitate lending to homeowners and buyers.[9] And on 17 August, the bank extended the expiration of its mortgage payment holiday programme from 27 September until 31 March 2021.[12]
Government of New Zealand
On 17 March the government announced a NZ$12.1 billion economic support and stimulus package equal to 4% of New Zealand's annual GDP. The package includes:
- NZ$5.8 billion in wage subsidies for businesses.
- NZ$2.8 billion in assistance to people already receiving benefits, including a $25 per week increase in core benefits and a doubling of the winter energy payment.
- NZ$500 million in additional health funding.
- NZ$600 million to support the aviation industry.
- NZ$126 million to support paid leave for workers impacted by the virus or in self-isolation.
- NZ$100 million for worker redeployment.
Small Business Cashflow Loans
The government also announced a Small Business Cashflow Loan programme that will provide five-year loans of up to NZ$100,000 for firms employing 50 or fewer full-time workers. No loan payments are due for the first two years.
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