Economic Weekly: Go hard, go negative?

It’s been a pretty epic week.  We went from starting off by hitting 100 days without knowing about any community COVID-19 transmission to back into degrees of lockdown by mid-week.  We’ll be there for a couple of weeks.

Our estimate of the lost economic activity from the lockdown is around $440 million per week that Auckland is in Level 3 and the rest of the country is in Level 2.  Against that of course, are the health benefits from continuing the elimination strategy.  The cost of the lockdown is useful for starting a conversation about the value of taking actions to prevent and minimise COVID outbreaks.  Our feature piece this week explores several themes: the value of investing in border and tracing/tracing measures; understanding the trade-offs of containment actions; better understanding the cost/benefits of different strategies, and; working on our flexibility and adaptability.

The RBNZ announced last week that it will boost the ceiling on its asset purchases, and will start preparing to be able to enact a negative OCR and direct lending to banks (Funding for Lending Programme).  The RBNZ’s economic outlook still seemed a touch on the strong side.  That – and the extent of the latest lockdowns – means we now expect the RBNZ will implement the Funding for Lending Programme and a negative OCR early next year.  We will update our forecasts very shortly to account for this view change.  The RBNZ’s ‘unconstrained’ OCR (see chart) continues to flag the need for unconventional policy measures, though asset purchases remain the go-to for now.

Meanwhile, for some of us it’s back to running down the middle of the street, binge-watching Netflix, worrying about coffee supplies, and feeling less guilty about the cupboard full of toilet paper that has been gathering dust.  Take care out there, whatever your level.