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Briefing to the Incoming Minister 2008

Reserve Bank of New Zealand

Executive summary

The Reserve Bank of New Zealand is a ‘full service’ central bank, well placed to be fully informed and to engage in the economic and financial system.

New Zealand’s financial system has been weathering extreme disorder in international financial markets, leading to a global ‘credit crunch’ that is dampening the economic outlook.

The New Zealand economy has contracted over 2008 following a sustained period of growth. We expect the economy to grow only slowly over the next few quarters before gaining more momentum toward the end of 2009.

We expect to see inflation pressures dissipate further, although price trends for some non-tradeables inflation remain of concern.

Should the outlook for inflation evolve as projected we would expect to lower the OCR further. We will be monitoring and assessing economic and financial developments and prospects closely when determining the precise timing and extent of OCR reductions over the coming months.

Markets have become more risk averse and illiquid, New Zealand banks’ access to and cost of offshore funding has been affected.

We have widened the eligible collateral New Zealand banks can use to access liquidity from the Reserve Bank.

We are currently consulting with the registered banks on proposed new standards for the management of their funding and liquidity.

The Government has introduced a temporary opt-in retail deposit guarantee scheme to give assurance to New Zealanders that their deposits are safe; and a temporary opt-in guarantee scheme covering the wholesale debt of investment-grade New Zealand financial institutions to facilitate the banks’ re-entry to offshore wholesale debt markets.

We are reviewing the longer-term impact of these schemes on prudential supervision policies.

Implementation of non-bank deposit taker regulation is continuing.

Insurance prudential supervision legislation is expected to be introduced.