The Reserve Bank will turn to other measures to stimulate the economy before dropping the Official Cash Rate further, after it was lowered to 0.25 per cent today.
It was announced the OCR would reduce from 1 per cent for at least the next year, as the country grapples with the economic fallout from the Covid-19 coronavirus.
On Saturday, the Government placed a two week self-isolation rule on every traveller entering New Zealand, apart from the Pacific Islands.
"Since the outbreak of the virus, global trade, travel, and business and consumer spending have been curtailed significantly," Reserve Bank Governor Adrian Orr said.
"The negative impact on the New Zealand economy is, and will continue to be, significant. Demand for New Zealand’s goods and services will be constrained, as will domestic production.
"Spending and investment will be subdued for an extended period while the responses to the Covid-19 virus evolve."
Mr Orr said they put the OCR at 0.25 per cent for a year to give certainty to those pricing interest rates and "to highlight to the banks and the general public we are not contemplating negative interest rates or a negative OCR".
He said the Reserve Bank would see how tomorrow's business package, Covid-19 and the regulatory impacts unfold, but if more was needed they would consider using tools such as a Large Scale Asset Purchase of Government bonds.
"It's not that complicated really, we'd be buying Government bonds in the secondary market," Mr Orr said.
"One of the interesting challenges in New Zealand is the irony of being well-behaved is that we don’t have a massive amount of Government debt to buy, but we certainly have quite a lot to buy for a significant monetary impost."
When asked if he was anticipating a recession, he said it was "academic to worry about whether it’s called a recession or not".
"It’s going to be a period of very weak economic activity."
Deputy Governor Geoff Bascand told media they expect "a severe impact on the economy and people".
"We don’t have specific numbers but we are saying this is going to spill through some business failures and some unemployment. We can’t quantify it but we acknowledge this will harm a number of people in the New Zealand economy."
The Government's business package will be released tomorrow to target workers and employers hit hard by the impact of coronavirus.
Yesterday, Prime Minister Jacinda Ardern told TVNZ 1's Q+A it "will be the most significant package I will announce while I am Prime Minister".
She told TVNZ1’s Q+A this morning ahead of its release.
Ms Ardern said it would be about both employers and employees and would be targeted.
"If you target, your support can be most generous more likely to keep people in work. Targeted is what we’ve focused on.
"You’ve seen other countries do singular payments, for me, looking at that I don’t know if that would be sufficient to keep people connected to the labour market."
Finance Minister Grant Robertson’s multi-billion dollar relief package for businesses hit by the Coronavirus Pandemic will be covered live by Jack Tame on TVNZ1 and 1NEWS.co.nz from 2-3pm on Tuesday.
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