Statement of Intent 1 July 2005 - 30 June 2008

Release date
July 2005

Foreword

This Statement of Intent is the product of an extensive strategic planning process that began late last year, leading to a series of outlooks for our activities and funding. These outlooks range from a new five-year Funding Agreement; to this three-year Statement of Intent (SOI); and through to the one-year strategic priorities, which are included in this SOI.

The five-year Funding Agreement reflects a substantially changed environment: where we see more demands on policy outputs; where obsolete systems need to be replaced; and where effective risk mitigation strategies need to be implemented. While activities are scoped over the five-year period of the Agreement, there is flexibility to re-prioritise activities within the period of the Agreement.

This SOI outlines the directions the Reserve Bank is heading over the next three years and how we aim to get there. Much of the detail is on what we will be doing during the first of those three years.

Typically, the Reserve Bank’s performance of its monetary policy function dominates public perceptions of the Bank’s role, while it performs its other functions quietly in the background. However, 2005/06 will see major activity in all three main functions, as set out in the Reserve Bank of New Zealand Act 1989: These are:

  • operating monetary policy to maintain price stability;
  • promoting the maintenance of a sound and efficient financial system; and
  • meeting the currency needs of the public.

As we carry out these changing functions, there will be strong demand on our expertise, our risk-mitigation strategies, and our back-office systems.

In monetary policy, the Bank is carrying out its responsibility to maintain price stability at a turning point in the economic cycle. The economy has continued to grow strongly over the past year, prompting us to tighten monetary conditions. Growth is expected to slow gradually as the lagged effects of last year’s tightening in monetary policy, slower population growth, and the high exchange rate increasingly constrain demand. However, there are significant signs of inflation pressures.

In banking oversight, the Bank has been implementing additional regulatory policies to maintain global standards for financial institutions, and bolster financial crisis management capabilities. Key initiatives include the implementation of the new Basel capital framework (Basel II), new International Financial Reporting Standards (IFRS), a more formal role in the oversight of the payment systems, the implementation of local incorporation policy, and the formation of an outsourcing policy

Following the creation of ANZ National Bank, 85 per cent of New Zealand’s banking assets are now concentrated in the four major Australian banks, lifting the potential of systemic risk in the event of a major bank failure. This has been partly behind an increase in regulatory capacity, so as to ensure that New Zealand has a resilient and efficient financial system, in which the failure of a single institution or critical system should not lead to a systemic financial crisis.

The Bank is also improving coordination with relevant Australian regulatory counterparts. The Bank will contribute to the recently established Trans-Tasman Council on Banking Supervision to oversee regulatory and supervision issues between New Zealand and Australia.

To better meet the public’s currency needs, the most significant changes to New Zealand’s ‘silver’ coinage since decimalisation in 1967 will be implemented in 2006. These changes will see the 10c, 20c and 50c coins reduced in size and made in different, lighter and cheaper metals, while the 5c coin will be withdrawn from circulation.

In meeting the challenges outlined in this SOI, we can no longer sustain past decisions to defer investment. Over the last 10 years, our average funding each year has been a little over $30 million. This will increase to almost $40 million a year under the new Funding Agreement. The new Agreement includes $23 million in capital expenditure to be incurred over the five years ending 30 June 2010.

The Bank’s ability to operate in the current demanding environment will be supported by changes to several back-office systems. We are upgrading our treasury, financial reporting, document management, forecasting and data systems, while further investment is needed to ensure continuity of operation in the event of major disasters. We are also planning a renovation of our ground floor to improve access, security and display of information.

The Bank is acutely aware of the need to manage all these significant changes effectively and efficiently, in a manner that builds national and international confidence in the stability and integrity of New Zealand’s money and monetary system. We will invest in the development of leadership by our people so as to support best practice, high achievement, change, innovation and productivity.

 

Alan Bollard
Governor

Adrian Orr
Deputy Governor