Our last blog in the new ‘normal’ series, focused on negative interest rates – this time we take a look at the issues that could be presented by a negative Bank Bill Benchmark Rate (BKBM).

Firstly, it is important to distinguish between the different interest rates. The OCR is set by the Reserve Bank (currently 0.25%). This is the interest rate that commercial banks receive for holding surplus cash in their settlement accounts with the RBNZ. This strongly influences the supply and demand for Bank Bills, captured by the BKBM interest rate benchmark. The BKBM benchmark underpins most corporate loan documentation and interest rate hedging structures and is therefore most important to corporates.