August 20, 2019 / 11:43 PM / a month ago

UPDATE 1-RBNZ's heavy rate cuts reduce need for unconventional policy - asst.governor

(Re-casts, adds comments from assistant governor)

By Charlotte Greenfield

WELLINGTON, Aug 21 (Reuters) - New Zealand’s aggressive interest rate cuts in recent weeks reduce the need for unconventional monetary policy to boost inflation, the central bank’s assistant governor said on Wednesday.

The Reserve Bank of New Zealand (RBNZ) cut rates by a larger than expected 50 basis points to a record low of 1% this month, surprising markets as the governor raised the possibility it may have to use negative interest rates in future.

“We judged that it would be better to do too much too early, than do too little too late,” said Christian Hawkesby, who is also the RBNZ’s general manager of economics, in remarks to a Bank for International Settlements forum in Manila.

“A more decisive action now gave inflation the best chance to lift earlier, reducing the probability that unconventional tools would be needed in the response to any future adverse shock.”

He explained that the neutral interest rate was now estimated in a wide range centred around 3.25%, which underscored that the bank’s current record low meant policy settings were very accommodative.

Though Hawkesby said that the bank would likely be able to avoid using unconventional policy tools, he cautioned that limited scope for conventional interest rate cuts meant that “no future options have been ruled out.”

Reporting by Charlotte Greenfield; Editing by Sandra Maler and Sam Holmes

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