Kia ora, I’m Chris McDonald from the Financial Stability Group at The Reserve Bank of New Zealand. (job title on screen) Here are 5 things you should know about the state of financial stability right now.
1: Trade tensions have increased financial stability risks in New Zealand. The particularly large tariffs between the US and China are a key concern. Tariffs increase the cost of trade and can disrupt supply chains. They look likely to reduce global economic growth, which would have consequences for the New Zealand economy.
2: The weak New Zealand economy remains challenging. Previously high interest rates and rising unemployment have dampened consumer spending and investment. Activity in the housing market also remains subdued. As a result, demand for lending from households and businesses has been low.
We expect the economy will recover over the coming year given lower interest rates and strong export prices supporting farmers’ incomes. However, there’s a possibility that recent global developments cause the economy to weaken further.
3: Lower interest rates are easing debt-servicing costs. This has eased financial pressures for many households and businesses. Overall, borrowers have managed the period of high interest rates. The biggest challenges are now from rising unemployment and for businesses weak demand.
4: While risks have increased, banks are well placed to continue to support the economy through any disruptions.
Here at Te Pūtea Matua, we continue to strengthen the financial system through initiatives like the upcoming Depositor Compensation Scheme. This will protect depositors’ funds up to one hundred thousand dollars in the case of a deposit-taker failure.
We also recently announced we are taking another look at bank capital requirements, to ensure they are set appropriately for New Zealand.
5: Our stress tests continue to highlight increased resilience in the financial sector. Our latest exercise showed insurers could pay all claims from a very severe earthquake, highlighting improved resilience since the Canterbury earthquakes.
You can find out more in the latest Financial Stability Report on our website.
