US and NZ cut rates - We are next

Fed slashes interest rates to near zero, returns to QE

Washington | The US Federal Reserve slashed its key interest rate by 100 basis points and launched a massive $US700 billion ($1.11 trillion) bond-buying program in a dramatic escalation of efforts to prevent an economic meltdown.

For the second time in less than a week, it cut the target rate, taking it to a range of 0 per cent to 0.25 per cent.

The Fed also delivered a 125 basis point cut, to 0.25 per cent, in the rate of emergency lending at the discount window for banks, with terms lengthened to 90 days.

Officials cut reserve requirement ratios for thousands of banks to zero and announced with central banks around the world enhanced US dollar liquidity through existing dollar swap arrangements.

In a statement, the Fed said the effects of the coronavirus "will weigh on economic activity in the near-term and pose risks to the economic outlook".

"In light of these developments, the Committee decided to lower the target range," he said.

Officials said they expect to keep rates where they are until policy makers are "confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals".

The Fed already cut interest rates by half a percentage point on March 3 at an emergency meeting, the first reduction outside of a regularly scheduled policy meeting since the global financial crisis in 2008.

Policymakers were not due to hold their next interest-rate setting meeting until March 17-18.

To ease concerns about a squeeze in money markets, the Fed said it would lift its holdings of Treasury securities by at least $US500 billion and mortgage-backed securities by at least $US200 billion.


NZ central bank slashes rate to 0.25pc

The Reserve Bank of New Zealand has slashed interest rates by 75 basis points to 0.25 per cent from 1 per cent for the next 12 months as it rolls out emergency measures in response to the COVID-19 pandemic.

The RBNZ met on Sunday at 2.30pm New Zealand time to discuss the implications of the outbreak of the coronovirus where it was decided that the next move from central bank would be a form of quantitative easing.
"The Official Cash Rate (OCR) is 0.25 percent, reduced from 1.0 percent, and will remain at this level for at least the next 12 months," the RBNZ said in a statement. "The negative economic implications of the COVID-19 virus continue to rise warranting further monetary stimulus."

The RBNZ's Monetary Policy Committee, which is headed up by governor Adrian Orr unanimously decided to keep the overnight cash rate at the new level of 0.25 per cent for at least the next 12 months. However, it did not appear to reach the same consensus on large scale asset purchases.

"The Committee also agreed that should further stimulus be required, a Large Scale Asset Purchase programme of New Zealand government bonds would be preferable to further OCR reductions."

The RBNZ has also postponed plans to force Australian banks to raise capital levels to withstand a once-in-200-year-event for at least 12 months. The decision to postpone the measures will free up around $20 billion in capital for the big four and allow them to lend an additional $47 billion according to the central bank.

"Should conditions warrant it next year, the Reserve Bank will consider whether further delays are necessary. We are taking this action now to help support lending in the economy at time when there is a lot of uncertainty." deputy governor Geoff Bascand said.

NAB chief economist Alan Oster said the RBNZ's decisive move sharply raised the possibility of an emergency meeting of the Reserve Bank of Australia and rate cut following meetings between the RBA, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authorities over the weekend.

 

We are heading towards Zero .

 

What are the implications of that?

 

Won’t be able to do negative gear
(Looking at the positive side...)