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Statement of Intent 1 July 2013 - 30 June 2016

Reserve Bank of New Zealand

Environmental setting

Despite continued strains in Europe and disappointing growth in many of the advanced economies, global financial market sentiment has improved. The medium-term outlook for New Zealand’s trading partner GDP growth remains firm. Recent IMF forecasts suggest that growth in the global economy will accelerate in 2014.

The New Zealand economy has been growing more rapidly than many other advanced economies, but also faces several challenges. The elevated New Zealand dollar is dampening competitiveness in the export and import-competing sectors, and farming has been adversely affected by drought. Government fiscal consolidation can be expected to affect demand.

The Christchurch rebuild will have pronounced effects on the New Zealand economy for several years, and the scale and pace of reconstruction and the consequences for growth and inflation will require careful monitoring.

At the same time, households and parts of the farming sector remain highly leveraged, private sector credit growth has begun to increase, and house prices are rising strongly in Auckland and Canterbury.

These conditions have heightened risks to the balance sheets of households, banks, non-bank deposit takers, and insurers, and point to increasing risks to financial stability in New Zealand

Overall, however, the banking system is well capitalised. Given the Australian dominance of ownership of New Zealand banks, and their importance, albeit a lesser one, in ownership of the insurance industry, the Reserve Bank maintains a close relationship with APRA, the Australian Prudential Regulatory Authority. In addition, regular discussions take place in the Trans-Tasman Banking Council.

Strategic priorities

The Bank has adopted 10 strategic priorities for 2013-16 to enhance its capacity to respond to this challenging environment. Many of these strategic priorities run across several functions and departments. Described in more detail on pages 8-10, they have three key objectives:

  • Continuing to strengthen the Bank’s performance
  • Developing a more integrated Bank approach to the Bank’s policy
  • Improving infrastructure and reducing enterprise risk.

Informing Government

The Bank keeps the Minister of Finance regularly informed about its thinking on significant policy developments, especially where Cabinet decisions and legislation may be required. This includes early notification of the Bank’s thinking on regulatory and related policy developments and any cases where the Minister may need to exercise his powers. The Bank also advises on the regulatory impact of proposed policy developments.

In terms of the 2013-16 SOI, this would include information on:

  • New Zealand’s key economic issues, especially the drivers and impacts of the persistently high exchange rate, and improving the Bank’s measurement and understanding of New Zealand’s saving behaviour;
  • measures to mitigate contingent government liabilities, such as could arise from the banking sector;
  • ongoing macro-prudential arrangements, especially as they might affect the housing sector; and
  • insurance sector supervision and the wider prudential regime, including the review of prudential supervision regime for non-bank deposit takers.

Graeme Wheeler