WELLINGTON (Reuters) – New Zealand’s Central Bank said on Wednesday that the financial system is in a solid position to weather the significant economic impact caused by the COVID-19 pandemic and support the country’s recovery.
The Reserve Bank of New Zealand also said banks in the country have strong buffers of capital and liquidity, although their resilience will be tested in the coming months as loan losses rise from current low levels.
“Our economic stress test analysis suggest banks can continue to lend and prosper through a broad range of adverse scenarios,” RBNZ Governor Adrian Orr said in the financial stability report that it releases twice a year.
Orr said the government’s wage subsidy scheme, which provided short-term support to firms that have lost income, and RBNZ’s easier monetary policy have cushioned the financial impact from the coronavirus pandemic.
RBNZ cut the official cash rate by 75 basis points to a record low of 0.25% in March and has committed NZ$60 billion for a quantitative easing programme to stimulate the economy.
Despite the support measures, some households and firms will face a significant loss of income, RBNZ said.
The tourism sector will be particularly affected and will face longer recoveries as border restrictions and social distancing measures in place to limit the spread of coronavirus affect sales and operating models.
RBNZ said even accounting for an expected recovery in the second half of the year, this year’s projected decline in annual GDP is the largest in at least 160 years.
New Zealand shut its borders for nearly seven weeks in one of the toughest restrictions in the world, which helped contain the spread of COVID-19.
There have been only 21 deaths from the virus, and about 1,500 cases so far. Most restrictions have now been lifted.
(Reporting by Praveen Menon; Editing by Dan Grebler)
