Reserve Bank well placed to manage crisis
The Reserve Bank is well placed as a "full service" central bank to be fully informed and engaged in the economic and financial system, while it has been weathering extreme international disorder, the Bank says in its Briefing to the Incoming Minister.
The Briefing was released today by the Minister of Finance, the Hon Bill English. It covers the Bank's responsibilities for monetary policy, financial stability, currency, and payments systems.
"We have direct information flows from all these critical areas and powers to respond where necessary," Reserve Bank Governor Alan Bollard said. In many other countries, central banks operate only some of these functions.
The Briefing, written before last week's Monetary Policy Statement, says adjustment to the international financial turbulence is proving extremely disruptive, and it will likely be some time before financial market conditions normalise.
The Bank notes that the New Zealand economy is expected to grow only slowly before gaining more momentum toward the end of 2009. Inflation pressures are expected to lessen, although price trends for some non-tradeables inflation remain of concern.
As markets have become more risk averse and illiquid, New Zealand banks' access to and the cost of offshore funding have been affected. While the Bank expects banks to access all available sources of liquidity, including from shareholders, we have also been widening the eligible collateral that banks can use to access liquidity from it. Further changes to funding and liquidity are currently being discussed with banks.
The Bank is reviewing the longer-term impact of the Government deposit and wholesale funding guarantee schemes on prudential supervision policies. The guarantees give non-banks the opportunity to consolidate their balance sheets and improve systems and risk management practices. Implementation of non-bank deposit taker regulation is continuing, and insurance prudential supervision legislation is expected to be introduced.
In its currency function, the Bank says it is improving the monitoring of trends in the use of currency, and ensuring it is holding sufficient cash reserves for emergencies.
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