The Reserve Bank’s big bond buying programme is making a big difference to the country’s economic rebound from the Covid-19 pandemic and any move to negative interest rates will be contingent on the health of the economy, according to the central bank’s chief economist.

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The RBNZ has been buying government bonds on the wholesale market as a way to bring down retail interest rates and pump money into the economy.

Last week it increased the size of the programme to a maximum $100 billion from $60b over the next two years.

RBNZ chief economist Yuong Ha told an RBNZ online seminar on its recent monetary statement that the programme was “absolutely” working, as seen by the falls of three-quarters to more than 1 percentage point in fixed and floating rates.

“That’s a very direct way to gauge the success of our … programme which is just another way to lower interest rates.”

He said the RBNZ was readying to use negative interest rates as a way to put further downward pressure on lending costs, although their use from possibly early next year, would depend how the economy was faring, and while a move would excite headlines, for many they would mean little difference.

“We don’t expect your mortgage rates or deposit rates to go negative, we think there’s room for those rates to fall, but they will remain positive,” Ha said.

“Don’t worry, you won’t be forced to pay money to the bank to keep your money there and likewise the bank won’t be paying you to take out a mortgage.”

Asked whether negative rates would work, Ha said there was “reasonably strong” evidence that negative rates would work in lowering rates.

“Yes there is evidence that this thing works, yes we are actively preparing what they would look like for New Zealand and if and when we need to, we’d have the confidence to use those tools.”

He said the RBNZ was aware of possible consequences of its actions, and said other options such as direct buying of bonds from the Treasury or widescale cash grants to households and businesses, known as helicopter money, did not necessarily offer “magic solutions” and there were “no free lunches” in tackling the downturn.