Your browser is not supported

Our website does not support the browser you are using. For a better browsing experience update to a compatible browser like the latest browsers from Chrome, Firefox and Safari.

Statement of Intent 1 July 2014 - 30 June 2017

Reserve Bank of New Zealand

Environmental setting

Over the past two years the New Zealand economy has outperformed most of the world’s advanced economies. New Zealand’s growth rate over the two years to December 2013 averaged 2.6 percent, or around twice the average of the group of 35 advanced economies in the IMF classification over this period.

New Zealand’s economic expansion has considerable momentum, with real GDP expected to grow by over 3.5 percent over calendar 2014. Several factors are contributing to the expansion. These include the Reserve Bank’s accommodative monetary policy that has helped to generate the lowest retail interest rates in 60 years. Other important factors are the high level of export prices, together with low international inflation, that resulted in the strongest terms of trade since 1973; the 40 percent growth in residential investment over the past two years (much of it due to building activity in Christchurch and Auckland); and the large increase in net immigration, which has increased by 32,000 in the year to March 2014.

Nevertheless, some key policy challenges remain. The exchange rate remains overvalued and continues to be a headwind for the export and import competing sectors; the current account remains in deficit despite the strong terms of trade; housing market imbalances continue to need addressing; and inflationary pressures, although moderate, are expected to increase over the next 18 months.

The New Zealand financial system remains sound and well placed to support the expansion of the economy. The banking system is well capitalised, funding and liquidity buffers are comfortably above required minimums, and non-performing loans continue to decline. At the same time, some risks are also apparent. House prices are overvalued on several measures, and levels of debt in the household sector relative to income are high and rising.

The Bank considers that monetary policy and prudential settings remain appropriate at this stage for the economic and financial risks facing New Zealand, taking into account restrictions on high loan-to-value ratio residential mortgage lending and the adjustments to interest rates under way.

Strategic priorities

The Bank adopted 10 strategic priorities for 2014-17 to enhance its capacity to respond to this challenging environment. Many of these strategic priorities run across several functions and departments.

These strategic priorities, which are described in more detail on pages 9-11, are framed around three broad themes:

  • Continuing to strengthen the Bank’s performance
  • Developing a more integrated Bank approach to the Bank’s policies
  • 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, legislation or regulation may be required. This includes early notification of the Bank’s thinking on regulatory and related policy developments and cases where the Minister may need to exercise his powers. The Bank also advises on the regulatory impact of proposed policy developments.

This information includes:

  • macroeconomic management over the coming economic cycle, including implementation of monetary policy and policies directed towards financial stability and their interaction with fiscal and wider policy settings;
  • ongoing macro-prudential arrangements, including work to increase transparency and public understanding about macro-prudential tools, and having regard to the interaction between macroprudential tools and efforts to increase the responsiveness of housing supply;
  • continued collaboration with the Treasury in areas of joint interest, including coordinated (although not necessarily agreed) advice;
  • developments in the international economy and financial markets;
  • New Zealand’s key economic issues, especially those affecting the exchange rate, inflation, savings, external balance and financial stability;
  • prudential oversight of New Zealand’s banks, insurance companies and non-bank deposit takers.

Graeme Wheeler