Alternative Monetary Policy in New Zealand

Like most central banks, the Reserve Bank of New Zealand typically implements monetary policy by controlling the short-term policy rate, the Official Cash Rate (OCR).

In recent years, many foreign central banks have had to turn to unconventional monetary policies (also referred to as ‘alternative’ monetary policies) as their ability to lower short-term policy rates became constrained. Alternative monetary policy represents the use of tools - other than the OCR - to affect the economy through multiple transmission channels.

13 May 2020

The Monetary Policy Committee has agreed to significantly expand the Large Scale Asset Purchase (LSAP) programme potential to $60 billion, up from the previous $33 billion limit. The LSAP programme includes NZ Government Bonds, Local Government Funding Agency Bonds and, now, NZ Government Inflation-Indexed Bonds.

The Reserve Bank has a range of tools it can deploy in a low interest rate environment.

The Reserve Bank’s Large Scale Asset Purchases (LSAP) programme will buy up to $60bn of NZ Government Bonds, Local Government Funding Agency (LGFA) Bonds and NZ Government Inflation-Indexed Bonds in the secondary market for the 12 months to May 2021.

The aim of the programme is to inject money into the economy to lower borrowing costs to households and businesses.