New Zealand’s central bank adds local govt. debt to stimulus plan

Sydney (Reuters): New Zealand’s central bank on Tuesday said it would buy up to NZ$ 3 billion ($ 1.79 billion) of local government debt to ease liquidity strains in the funding market as it moves to cushion the economy from the fallout of the coronavirus pandemic.

The Reserve Bank of New Zealand (RBNZ) said the new measure would expand on its Large Scale Asset Purchase (LSAP) program, which has been buying government debt.

“The Bank had observed signs of increasing illiquidity and dislocation in the Local Government Funding Agency (LGFA) market in particular in recent weeks,” it said in a statement.

The strain in this important market was “posing a significant risk to the transmission of monetary policy” and needed to be tackled, the bank said.

As a result, the bank’s policy-making committee held a conference call on 4 April to discuss the problem and authorise the purchase of LGFA debt.

The bank plans to buy up to NZ$ 3 billion of LGFA debt on the secondary market within the next 12 months, or about 30% of the total LGFA debt on issue. The move takes the total size of the LSAP to NZ$ 33 billion.

The committee will update its economic assessment and the size and scope of the LSAP at its next meeting set for 13 May, the bank added.