There is a lot of talk about a 50bp cut by the RBNZ in a couple of weeks due to COVID-19. But what does this mean, and why are we cutting interest rates to battle a bad flu?
In this post I am going to discuss the case for interest rate cuts during a natural disaster, to help to explain what demand shock they are battling and why this cut makes sense. The RBNZ already applied this logic during the Canterbury earthquake in 2011, so it is useful to think about COVID-19 from a similar perspective.
I’d like to thank the people I’ve chatted with about this issue to clarify what is going on – you know who you are, and I appreciate it. The New Zealand economics community is wonderful!Read more