The Reserve Bank (RBNZ) has expanded its Quantitative Easing programme to up to $100 billion to further lower retail interest rates.
The RBNZ left the official cash rate unchanged at 0.25 in today's Monetary Policy Statement.
But the monetary policy committee agreed to expand the Quantitative Easing (QE) programme - sometimes dubbed "printing money" - from a previous limit of $60b.
It has extended the length of the programme to June 2022.
The move reflected ongoing pandemic uncertainty, as highlighted by New Zealand's fresh lockdown, Governor Adrian Orr said.
"Any significant change in the global and domestic economic outlook remains dependent on the containment of the virus, which is highly uncertain as evidenced today by the return to social restrictions in New Zealand," he said in the statement.
"Such uncertainty is stifling household and business spending appetites, as highlighted in confidence surveys. Given the ongoing health uncertainty, there remains a downside risk to our baseline economic scenario."
"International border restrictions will continue to significantly curtail migration and tourism, and lead to the activity outlook being uneven across industries and regions."
"Commodity prices for New Zealand's exports remain robust, but this has been partly offset by a rise in the New Zealand dollar exchange rate moderating the return to local export producers."
Prior to the fresh lockdown economists say the key decision as being whether to increase the scale of the bond buying (quantitative easing) programme - currently capped at $60 billion.
That programme has so far managed to keep rates low, taking pressure off local credit markets by guaranteeing a buyer for bonds the Government has issued to fund pandemic support measures.
The RBNZ Committee agreed that any future move to a lower or negative OCR - if complemented by a Funding for Lending Programme - could provide an effective way to deliver monetary stimulus in addition to the expanded LSAP if needed.
Quantitative Easing (QE) Q&A:
What is QE?
Quantitative easing (QE) is a tool that central banks use to inject cash into the economy when other measures - like cutting interest rates - reach their limit.
How does it work?
The bank creates the funds to buy government bonds on the secondary market. This puts cash into the financial system. Its role as large-scale buyer puts a cap on government bond yields debt and reassures markets when they are stressed and interest rates spike.
The RBNZ has already cut rates as low as it practically can for now, leaving QE as its preferred next tool.
With trillions of dollars worth of bonds issued to fund stimulus globally markets were stretched and rates were rising on NZ government bonds.
The RBNZ has acted to put downward pressure on those rates and to help cushion the economy and facilitate the issue of more government bonds to get us through the crisis.
The move to expand the QE limit to $100b over the next two years is huge and is bigger than markets anticipated.