The New Zealand dollar is posting incredible movement on Thursday as forex markets begin to assess the impact of the central bank potentially cutting interest rates to below zero. As policymakers consider negative rates to support the economy, analysts are determining how the policy would affect the kiwi, similarly to how negative rates have affected the Swiss franc or the Swedish krona.

The Reserve Bank of New Zealand (RBNZ) is preparing to take the country down the path of subzero rates to help reverse the coronavirus-induced economic downturn. Reportedly, officials are beginning to look at how the Riksbank (Sweden), the Bank of Japan (BoJ), and the Swiss National Bank (SNB) have fared since introducing NIRP mechanisms.

RBNZ Governor Adrian Orr has routinely warned about the risks of low inflation or deflation. As a result, most market observers anticipate the central bank to reduce its cash rate from 0.25% to -0.25% or as much as -0.5% by April 2021.

All eyes will be on the RBNZ’s Monetary Policy Statement next month. While it has not commented further on possibly introducing negative rates, the RBNZ has repeatedly noted that it remains in constant contact with other central banks, particularly as it works on a package of stimulus measures and relief tools to help the economic rebound.

Not everyone thinks the economy is that bad that it warrants negative rates. Jarrod Kerr, chief economist at Kiwibank in Auckland, told Bloomberg:

The economy is simply not in a bad enough place to justify the risky experiment that is negative rates. The distortions thrown up by negative rates more than offset the stimulatory benefit.

On the data front, manufacturing sales tumbled 12.1% year-over-year in the second quarter, down from the 0.4% dip in the first quarter. Electronic retail card spending plunged 7.9% last month, down from the 1.2% jump in July.

This week, business purchasing managers’ index (PMI), food inflation, and consumer confidence data will be released.

The USD/NZD currency pair rose 0.39% to 1.5020, from an opening of 1.4961, at 16:45 GMT on Thursday. The EUR/NZD advanced 0.89% to 1.7815, from an opening of 1.7671.