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Statement of Intent 1 July 2010 - 30 June 2013

Reserve Bank of New Zealand


Recovery from the global financial crisis and recession is underway, yet there are almost daily reminders that conditions remain fragile and volatile.

New Zealand has emerged from its recession, benefiting from stronger growth in our major trading partners in China, Australia and emerging Asia. However, recovery remains sluggish in the UK and Europe, and sovereign debt concerns hovering over several European economies are disturbing financial markets.

Compared to other countries, New Zealand has been less scarred than most from the crisis. Our financial system is much simpler than in other parts of the globe, our banks were not as exposed to toxic assets and our firms were not as highly leveraged as elsewhere, though our households are highly leveraged.

Funding has been accessible for the banking system over the past year but has been more expensive than before the crisis. More recently, the sovereign debt concerns in Europe have impacted the cost and availability of funding. As an externally indebted country, New Zealand remains exposed to any deterioration in global debt markets, despite good quality fiscal management.

Conventional monetary policy, coupled with temporary emergency liquidity measures, has been sufficient to bring New Zealand through the crisis without the need for the radical policies adopted in several major economies.

The Strategic Priorities outlined in this SOI capture the work we have underway to navigate through these conditions.

There is a lively debate in New Zealand regarding the role of monetary policy in managing financial misalignments. For its part, the Bank is investigating the potential for macro-prudential policy tools for New Zealand. Unlike many of our counterparts overseas, as a ‘full service’ central bank we can engage staff in this work from across our policy departments, who are specialists in monetary policy, financial markets and banking supervision.

As the domestic economic recovery continues, we expect to begin unwinding the degree of monetary policy stimulus. While we have been able to unwind some of the emergency liquidity support provided to the financial system during the financial crisis, our facilities remain under review given current financial market turbulence. Our financial market staff and economists are directing this work.

Our banking supervisors are also engaging in global discussions on what type of bank supervision regime may be necessary to ward against such catastrophes in future. We expect to make further changes to the Basel capital regime. Our approach will be to ensure that New Zealand adopts those measures that improve the soundness of the financial system while not undermining its efficiency.

At the same time, work initiated in previous years is continuing. In the period covered by this SOI, we will advance the implementation of the new Non-Bank Deposit Taker (NBDT) regime. A gradual rationalisation of the finance company sector continues, with the expiry of the original term of the retail deposit guarantee scheme and a more stringent regulatory regime resulting in further consolidation. We will continue to develop and implement the new prudential regime for Insurance.

In our Priorities, we also recognise the need to ensure that our staff can meet the challenges of our evolving responsibilities. We will provide adequate development and support.

It is not only financial crises that we must guard against. In recent years the Bank has refreshed or replaced systems to ensure we can withstand physical crises or biohazards. A key initiative in this SOI will be the establishment of a business support centre in Auckland to improve business continuity and disaster recovery capability.

Our budget reflects the emerging environment. As the Bank’s last Five-Year Funding Agreement was due to expire on 30 June 2010, we have negotiated a new Funding Agreement with the Minister for the period to 30 June 2015. While ensuring that funding is available to carry out existing functions and the new responsibilities outlined above, we have also been particularly conscious of the need to maintain strong financial disciplines and to carefully prioritise expenditure proposals.

The Bank’s budget for 2010–11 shows operating expenditure of $47.8 million, an increase of $0.9 million over last year’s Funding Agreement of $46.9 million, reflecting the building of capacity in the Prudential Supervision Department.

This SOI reflects our ongoing commitment to ensure stability in New Zealand’s financial system and growth in our economy in the face of a fragile environment.

Alan Bollard

Grant Spencer
Deputy Governor