The Funding for Lending Programme (FLP) allows eligible banks to borrow from us at the OCR.
This means banks are less reliant on more expensive deposits and wholesale lending, which lowers their overall funding costs.
In turn, this lets banks pass on the reductions to their customers through lower mortgage and business-lending rates. As banks are also less reliant on funding from savers, it is also likely to lower term deposit rates.
For borrowers, lower interest rates means they have more money to spend on other things. In contrast, savers are likely to see lower returns.
Access to the FLP closed on 6 December 2022. As this funding matures, banks will pay back the money that they have borrowed. The final maturity for the FLP will be toward the end of 2025.
The Large-scale Asset Purchase (LSAP) programme (also called quantitative easing or QE), involves us buying government bonds from banks in exchange for electronically created money.
When we buy bonds, it pushes down interest rates on loans. With lower borrowing costs, households have more money and businesses have extra cash flow. This injects more money into the economy, as people are more likely to spend or invest their money.
In contrast, savers will experience lower returns.
We stopped buying bonds on 23 July 2021, and we're now selling down our bonds. As a result, the amount of bonds we hold has started to fall.
Just like the OCR, the Monetary Policy Committee decides whether we need to buy or sell bonds.
Navigating the storm: Monetary and fiscal policy during COVID-19 - Speech by Paul Conway
Traditionally, raising or lowering the OCR has been our main tool for monetary policy. Introducing a negative OCR means we would lower the OCR below zero.
A negative OCR would work in the same way as lowering the OCR when it is above zero. With a negative OCR, banks would have to pay interest on their deposits with us, rather than earning interest when the OCR is positive.
A negative OCR would reduce market interest rates, which would then flow through into the wider economy.
This doesn't mean you will have to pay to keep your money in an on-call savings account or term deposit in the bank. The negative rates would only apply to banks’ wholesale customers such as other financial firms and large corporates. But, borrowing money from a bank may become cheaper.
We have considered this tool operationally ready since our February 2021 Monetary Policy Statement.
Read more about the negative official cash rate
Like many other central banks, we hold foreign reserves.
Our foreign reserves must be managed according to the Foreign Reserves Management and Co-ordination Framework (FRCF) agreed between us and the Minister of Finance.
Read more about the FRCF
In the past, we have explored the option of using large-scale purchases of foreign assets as a monetary policy tool when the OCR is near its effective lower bound. This tool would be similar to an LSAP programme, but with foreign rather than domestic assets.
By reducing the value of the New Zealand dollar, we can stimulate the economy and increase inflation. This type of larger-scale programme aimed primarily at stimulating the economy is not currently explicitly considered in the level of foreign reserves governed by the FRCF.