WELLINGTON – The Central Bank of New Zealand said on Wednesday that the financial system was in a strong position to deal with the significant economic impact caused by the COVID-19 pandemic and supported the country’s recovery.
The Reserve Bank of New Zealand also said banks in the country had strong capital and liquidity buffers, although their resilience would be tested in the coming months as loan losses rose from current low levels.
“Our economic stress test analysis shows that banks can continue to lend and prosper through various adverse scenarios,” RBNZ Governor Adrian Orr said in a financial stability report released twice a year.
Orr said the government wage subsidy scheme, which provides short-term support to companies that have lost revenue, and an easier RBNZ monetary policy has dampened the financial impact of the coronavirus pandemic.
The RBNZ cut its official interest rate by 75 basis points to a record low of 0.25% in March and has committed NZ $ 60 billion to a quantitative easing program to stimulate the economy.
Despite supportive measures, some households and companies will face significant income losses, the RBNZ said.
The tourism sector will be greatly affected and will face a longer recovery due to border restrictions and socially distracting measures to limit the spread of coronavirus affecting sales and operating models.
The RBNZ said even taking into account the expected recovery in the second half of this year, the projected decline in annual GDP this year is the largest in at least 160 years.
New Zealand closed its borders for almost seven weeks in one of the toughest restrictions in the world, which helped curb the spread of COVID-19.
There have only been 21 deaths from the virus, and about 1,500 cases so far. Most of the restrictions have now been lifted.
(Reporting by Praveen Menon; Editing by Dan Grebler)
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