Kiwi Dollar Pushes Up as the Reserve Bank of New Zealand Cuts Short Stimulus Supply

There was a report by the Reserve Bank of New Zealand that stated that it has effectively reduced its 100 billion New Zealand Dollar Covid-19 stimulus bond purchase program with immediate effect. This report made the New Zealand Dollar, (affectionately known as the Kiwi Dollar), increase in value. It is believed that this will eventually lead to an increase in interest rates soon.

Stimulus Project for the COVID-19 Pandemic

The Reserve Bank of New Zealand has put appropriate measures in place when the Covid-19 was beginning to ravage the country. By March 2020, the measures that had been put in place included a NZD $100 billion worth of stimulus package. Large sums of money were pumped into the economy and the interest rates were drastically reduced.

A bond purchase program was also set up whose goal was to buy up New Zealand Government Bonds with the NZD $100 billion by June 2020. As a result, there was a success in curtailing the Covid-19 pandemic earlier than anticipated. The economy has also been helped by the housing boom and much spending on retail goods by citizens. This has enabled New Zealand’s economy to be revived faster than many countries.

In May 2021, the RBNZ held a meeting in which possibilities were suggested of an increase in interest rate by next year September. Adrian Orr, the governor of the RBNZ, however, says employment and inflation goals come first before tightening policies.

Effect of the Report on the New Zealand Dollar

The RBNZ, whose official cash rate is still at 0.25%, is therefore taking into consideration the clamor of local banks for an earlier than expected rise of the interest rate.

The report caused an increase in the price of the New Zealand Dollar. It moved up by 1.1% to reach $0.7017.

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