The Reserve Bank of New Zealand has added $3 billion of Local Government Funding Agency (LGFA) debt to its Large Scale Asset Purchase programme (LSAP). This represents approximately 30 percent of the total LGFA debt on issue, and takes the total size of the LSAP to $33 billion over 12 months.
The Reserve Bank’s Monetary Policy Committee (MPC) noted that purchases of New Zealand Government Bonds to date have successfully reduced longer-term interest rates. However, the negative economic effects of the COVID-19 outbreak continue to evolve.
The Committee agreed it was important that monetary policy operated as effectively as possible. The LGFA bonds also play an important role in determining interest rates faced by firms and households. As such, the Committee agreed that the purchase of LGFA bonds by the Bank will provide stability and retain confidence in New Zealand’s capital market.
The Crown has agreed to extend and increase the indemnity provided to the Reserve Bank.
The MPC is due to update its economic assessment and the size and scope of the LSAP at its next scheduled meeting on 13 May.