(Adds comments by central bank governor, other details)
WELLINGTON, May 14 (Reuters) - New Zealand's central bank governor said on Thursday the bank's quantitative easing programme was the best available monetary policy option for now as banks are not yet ready for negative interest rates.
"The operational challenge still remains with some banks still working on being able to actually operate with negative official cash rate and negative wholesale rates," Governor Adrian Orr said at a parliamentary select committee meeting.
The Reserve Bank of New Zealand (RBNZ) on Wednesday doubled its quantitative easing programme as the COVID-19 pandemic wreaks havoc on the economy.
It also reaffirmed its forward guidance for the cash rate to remain at 0.25% until early 2021, but said negative rates "will become an option in future."
Orr said RBNZ wants to be sure it was holding no more than half the government bonds on issue so there is plenty of room for other market participants.
He did not rule out direct purchase of government bonds, but maintained there was no need to do so now.
"We don't want to do that if we saw that markets were just dysfunctional, and that's far from the case right now. So if there is no need to go to the primary market we find it far more effective to manage through secondary market," Orr said.
He added it was the government's decision on whether it wants to monetise its expenditure.
The government will announce its annual budget on Thursday, which is expected to unleash billions of dollars to cushion the economic blow from the coronavirus pandemic. (([email protected]; +6448028163; Reuters Messaging: [email protected]; Twitter: https://twitter.com/Journopraveen))
