Reserve Bank’s FLP will “squander” billions – Positive Money NZ

by Duffie Osental26 Nov 2020

The Reserve Bank of New Zealand’s (RBNZ) Funding to Lend programme (FLP) will “squander” billions of dollars that could be better used to directly support job-rich sections of the economy, according to advocacy group Positive Money New Zealand (PMNZ).

The FLP, which was announced by the central bank earlier this month, earmarks $28 billion for retail banks to allow them to lower their interest rates for consumers. In a recent Reuters poll, economists said that the FLP could be key to RBNZ bringing the OCR down into negative territory next year.

Read more: Opposition party pushes back on Reserve Bank's FLP announcement

However, PMNZ said that banks will not use much of the funding money anyway and will probably sit on it, since they are already “awash with central bank-provided liquidity.”

“The Reserve Bank needs to stop giving money to the banks as the money is not making its way into the productive economy,” said Don Richards, national spokesperson for PMNZ. “We need to eliminate the middle-man and provide the funding directly into the job rich sections of the economy. As an example of what has worked, the wage subsidy cost half of what the Reserve Bank will be giving to the banks and yet it provided a direct and ongoing stimulus to the economy.”

Another option, according to Richards, could be to provide the money to the government to spend on infrastructure projects such as roads, schools, and housing.

“The first Labour government did something similar during the Great Depression in the 1930s and that got us out of a deeper financial hole than the one we are in currently in,” said Richards. “So rather than provide $28 billion for the banks to sit on, let’s try something that has proven to have worked.”

Most Read

NZ Adviser TV