Opportunity or Risk? Our choice

26 September 2019

New Zealand is in a sound position to both seize the opportunities and manage the challenges associated with the global low interest rate environment, the Reserve Bank Governor said in a speech today.

Governor Adrian Orr told the NZX Issuer Forum in Auckland that the global low interest rate environment is providing opportunities and challenges for central banks around the world, and New Zealand is not alone.

Mr Orr said low global interest rates primarily reflect low and stable inflation rates, which is a “deliberate and desired” outcome of monetary policy. However, many central banks are facing the challenge of inflation consistently running below target, prompting them to reduce policy rates to stimulate spending and boost demand.

“Some view these low rates as signs of concern. They can also be an opportunity. We are confident that rates will remain low for a number of years, providing a great environment to invest.”

“The good news for New Zealand, unlike many other OECD economies, is that our government’s books are in good shape, with room to expand investment, and there is already a strong fiscal impulse underway from public spending and investment.”

Mr Orr said there remains a loud call from many parts of the country for leaders to better signal investment intentions, with New Zealand in a strong position to benefit.

“We have the trifecta of sound government finances, clear infrastructure demands, and low hurdle rates for investing. The same can be said for corporate balance sheets in New Zealand. With relatively low levels of debt, and ongoing demand for goods and services, our businesses are well positioned.”

The global low interest rate environment is also raising new challenges at central banks. Mr Orr said many questions have been asked about the possibility of negative interest rates and alternative monetary policy strategies.

“We are currently thinking hard about these questions, because it makes sense to do so as a precaution – it’s best to put the roof on when the sun is shining. Our current view is that we are unlikely to need ‘unconventional’ monetary policy tools. But we would be remiss not to be prepared,” Mr Orr said.

“We are not alone in the low interest rate environment, this is a global phenomenon. However, what we do have is more policy and business opportunities than most OECD economies, and this is something that we should take advantage of. We will need to be long-term in our planning and investing, but now is a generational opportunity to get ahead.”

More information:
• Speech: Opportunity or Risk? Our choice

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