Reserve Bank Weighs Policy Shifts Amid Ageing Population and Economic Pressures

As New Zealand's population ages, the Reserve Bank is examining how its monetary policies may need to adapt to new economic realities. The central bank is considering the long-term implications of an increasingly elderly demographic, including potential shifts in interest rates, inflation, and financial stability.

The Reserve Bank, led by acting Governor Christian Hawkesby, has acknowledged that an ageing population could lead to downward pressure on interest rates over the next decade. This is due to the fact that older individuals tend to save more than younger people, which could reduce demand for debt, goods, and services. As a result, inflation may be suppressed, requiring the central bank to cut rates more aggressively during economic downturns.

This scenario could lead to rising prices for assets like housing and equities, as lower interest rates encourage investment in these areas. The Bank of Japan has long been an example of this approach, using ultra-loose monetary policy to manage the economic challenges of an aging society.

According to the Reserve Bank, if low interest rates are insufficient to stimulate the economy, it may have to resort to money printing, similar to what it did during the COVID-19 pandemic. This possibility is outlined in a chapter of the bank’s biannual Financial Stability Report, which highlights the potential impacts of demographic changes on the economy.

The report also discusses how an ageing population may affect the