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Briefing to the Incoming Minister 2023

Executive summary | Whakarāpopototanga Tāpae

Briefing delivered to the Minister: 27 November 2023

The Reserve Bank of New Zealand – Te Pūtea Matua acts to promote the prosperity and well-being of New Zealanders as kaitiaki (guardians) of our financial system. We do this by pursuing our price stability, financial stability and central bank objectives and functions.

We are a ‘full service’ central bank, meaning we have a wide mandate that spans monetary policy, financial stability, cash operations, and financial markets infrastructure. When compared to other jurisdictions, it is clear that we fulfil a wider mandate than many of our international comparators or counterparts.

We are operating in a complex and challenging economic environment, with significant inflationary pressures domestically and internationally, together with labour shortages, and ongoing geopolitical and climate disruption.

There are risks of further inflationary shocks, global economic slowdown, and volatility in financial markets. These risks can put upward pressure on near-term inflation and mean higher for longer interest rates globally, higher unemployment and strains on debt servicing and asset prices.

New Zealand’s financial system is well placed to handle both the current adjustment to higher interest rates and more severe economic scenarios. Banks and non-bank deposit takers (NBDTs) face significant regulatory change over the coming years as we work to create a single deposit takers regime under the Deposit Takers Act 2023. In addition, some NBDTs are facing ongoing challenges, raising questions about the sustainability of some current business models.

While insurers’ solvency positions remain robust, some are facing profitability challenges, particularly general insurers where recent weather events have resulted in increasing reinsurance and operational costs. This combined with more granular use of risk-based pricing may result in increased costs and reduced access to insurance for some customers, and a rise in underinsurance.

We are sufficiently capitalised and prepared for many of these eventualities, including the necessary coordination between monetary and prudential functions. However, extreme circumstances could still have repercussions for the Crown balance sheet. Processes are in place to engage with the Minister of Finance on a ‘no surprises’ basis.

A great deal of work is required to understand the implications of the recent domestic and global disruption, and associated policy responses, for macro-economic stability in New Zealand. Monetary and fiscal policy coordination is critical for our small, open economy. It is vital that we continue to work closely together with the Treasury – Te Tai Ōhanga to support the country’s recovery following the COVID-19 pandemic.

We look forward to engaging with the Minister of Finance on our key issues and ’in flight’ projects.