Did RBNZ Hint at Targeted Term Lending as Unconventional Monpol Option?

By Sophia Rodrigues

The Reserve Bank of New Zealand may have dropped a hint on Monday that targeted term lending could be one of its preferred unconventional monetary policy measures to deal with the impact of coronavirus on the economy.

On Monday, the RBNZ along with the New Zealand Bankers’ Association issued a statement saying New Zealand banks are ready to respond to the impacts of coronavirus.

The statement came one day ahead (Tuesday, 1400 hours NZ time) of a release of speech and notes by Governor Adrian Orr on how the RBNZ would assess and use unconventional monetary policy tools if ever needed.

In the statement, NZBA’s chief executive Roger Beaumont said customers, mainly small and medium sized businesses, could get support from their banks in the form of access to short-term funding, loan consolidation or restructuring, and temporary moving to interest-only loan repayments.

The statement didn’t indicate if RBNZ would provide any support to the banks to meet their “special” lending needs but Governor Adrian Orr said they are watching for signs of funding market pressures or emerging signs of credit stress.

Targeted term lending was one of the unconventional monetary policy measures discussed in the RBNZ’s 2018 paper, where they noted that such a measure can be effective in an economy like New Zealand that rely heavily on bank financing.

“Some form of targeted lending scheme could be particularly useful if banks’ funding costs were elevated or if credit supply to particular sectors was impaired, and the benefit of the low OCR was not being passed through to the real economy,” the paper said.

“This type of facility would provide collateralised term lending to banks at a subsidised rate if banks met specified lending objectives. These criteria would ensure that the low policy rate was being passed on to households and businesses,” the paper said.

--Contact: sophia@centralbankintel.com