• The Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) at 1.0% at its OCR Review this week, surprising the market with a rather sanguine tone, given the deteriorating global backdrop.
• The RBNZ noted that both fiscal and monetary policy have scope to provide additional stimulus.
• As the OCR plumbs new lows, questions are being raised over the efficacy of additional rate cuts.

This note highlights potential impediments to the monetary policy transmission mechanism and suggests fiscal policy is better placed to stimulate NZ economic activity.

The OCR has had less influence on retail interest rates since the Global Financial Crisis (GFC) as the RBNZ has required a greater share of NZ bank funding to come from stable sources, such as retail deposits and long-term wholesale debt.