Reserve Bank announces new liquidity measures

Release date
07 May 2008

The Reserve Bank today announced that it is adopting measures to ensure there is sufficient liquidity in the banking system in the event of further international financial market turbulence.

Deputy Governor Grant Spencer said the measures mirror similar actions by other central banks in the wake of the global financial market turmoil.

"We are confident the banking system can cope with current conditions, but we are taking steps to ensure it can handle any unforeseen pressure in the current uncertain environment," Mr Spencer said.

The new liquidity measures, most of which will take effect from 3 June, include the following:

  • Extension of the range of securities eligible for acceptance in the Reserve Bank's domestic liquidity operations to include: NZ-registered NZ dollar AAA rated securities, including Residential Mortgage-backed securities, and AA rated NZ government sector debt – including Government agencies, SOEs and Local Authorities.
  • The discount margin applied in the Bank's Overnight Reverse Repo Facility will be 50 basis points for all eligible securities.
  • A graduated ‘haircut' regime will replace the existing limit structure for all securities eligible for domestic liquidity operations.
  • Extension of Overnight Reverse Repo Facility from 1 day to a maximum of 30 days.

These measures will further enhance liquidity in the banking system following initial measures introduced in September last year. They are the result of a work programme over the past two months to help pre-position for unexpected liquidity pressures.

Mr Spencer emphasised these liquidity measures have no implications for the Bank's monetary policy stance.

Further detail of the measures is available on the Bank's website (www.rbnz.govt.nz). The Bank intends to consult with market participants before finalising the timing and detail of the measures. The changes are seen as temporary, to be kept in place while global markets remain unsettled. The Bank's liquidity arrangements will be further reviewed in 12 months' time.

For media inquiries, please contact Mike Hannah, ph 04 471 3671, mobile 021 497418.