Statement of Intent 1 July 2006 - 30 June 2009
The SOI is our three-year forward-looking picture of Reserve Bank activities. It covers our work by function, and highlights the Strategic Priorities, the big and important things we will be doing this year, as well as all the business as usual.
A new five-year Funding Agreement was ratified by Parliament last year. In this we recognised that there would be more demands on our policy outputs in a changing economic environment, and that we would need to replace obsolete systems and effectively mitigate a number of risks. This SOI represents our first formal opportunity to review our priorities.
In monetary policy, we still face considerable challenges. While growth in economic activity has begun to slow down, the economy is still showing pressures from a sustained period of growth and demand for limited resources. The upward shift in oil prices in recent years has added to the mix. These factors together have moved actual and projected inflation temporarily above our target band, widened the current account deficit, reduced household savings, and caused wage pressures as skill shortages persist. This has necessitated high interest rates, by world standards, and the exchange rate, while softening, remains at high levels.
It is vital that the Bank’s economic toolkit is adequate to the task of keeping up with the changing nature of our economy. In this SOI, we have set strategic priorities for replacing or redeveloping the current forecasting model and investigating how we can best maintain price stability without causing unnecessary damage to the exporting sector.
Within a three-year context, we can expect to see a strong line of continuity between one year’s strategic priorities and the next. Where last year, for instance, we developed policies on fundamental banking regulatory issues – such as outsourcing, the Basel II capital adequacy regime for banks, local incorporation, and bank-failure management – implementing these policies will be carried forward in 2006/07. We will also be contributing to a review of the supervision of the non-bank financial sector.
Similarly, where we readied our currency systems in 2005/06 for the design and production of new ‘silver’ coins, implementing this modernisation of our coinage will be a key task for the coming year. A public awareness campaign has been launched for the introduction of smaller and lighter 10 cent, 20 cent, and 50 cent coins, and the withdrawal of the 5 cent coin from circulation. Logistically, this will be the biggest currency change since decimalisation in 1967 – a change that will deliver considerable savings to the New Zealand taxpayer.
We must always ensure we have good management skills, to enable us to manage our functions and resources. In 2005/06, we initiated programmes to develop the leadership potential among our managers and enhance communication between teams that are spread across quite varied and specialist functions. We will build on the progress achieved in 2005/06 in enhancing our managers’ leadership skills.
Finally, in our priorities for 2006/07 we will also review the structure of the Bank’s balance sheet to ensure that it best meets the statutory requirements of the Bank – that is, monetary policy, currency, bank liquidity, and foreign reserves.
The five-year Funding Agreement recognised that, in meeting the challenges outlined in this SOI and its predecessor, we can no longer sustain past decisions to defer investment. 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 financial reporting, web capability, document management, and forecasting and data systems, while further investment is needed to ensure continuity of operation in the event of major disasters. A new public heritage museum to be opened in Wellington later in 2006 will offer a new window on the Bank, its history and valuable currency artefacts, as well as the role it plays in the New Zealand economy today.
The Bank will endeavour to achieve its strategic and day-to-day goals with the continued best interests of the New Zealand economy and taxpayers in mind.
15 June 2006