Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Bollard warns against over regulation in response to quakes

Bollard warns against over regulation in response to earthquakes

Oct. 18 (BusinessDesk) - New Zealand needs to avoid a costly regulatory over-reaction to the Christchurch earthquakes, though the central bank will intervene in the foreign exchange market if needed in response to a large earthquake in Wellington, said Reserve Bank governor Alan Bollard in a speech.

It would be inappropriate, all things being equal, for monetary policy to be stimulatory during the reconstruction period, Dr Bollard said in a speech to the Rotary Club of Wellington.

Disaster preparedness was necessary and desirable, but not costless, he said.

Increases in safety standards, such as seismic strengthening, can result in significant costs for an economy that linger long after the risks they aim to address have occurred. They can also create a complicated regulatory environment that may result in significant impediments for activity.

"The challenge here will be to avoid a costly regulatory over-reaction to a one-off event," Bollard said. Consistent with the Policy Targets Agreement, monetary policy does not react to such short-term price changes.

When the bank reduced the official cash rate by 50 basis points following the February earthquake that devastates Christchurch it described this as an insurance measure to avoid a significant and persistent deterioration in activity.

"We were conscious, however, that depending on wider economic conditions, this insurance would need to be removed as rebuilding, and a recovery in activity more generally, drew the economy's resources into production.

Bollard said a seismic assessment of the Reserve Bank's main office in Wellington in September found that the building would withstand an earthquake greater than the Christchurch earthquake.

"But even though our building could be standing after an earthquake, there is a risk that damage to surrounding buildings could make the Wellington office inaccessible," he said.

To ensure that the bank's core functions were maintained after a major earthquake in Wellington the bank had a dozen staff its Auckland office engaged critical roles. The provisions of Reserve Bank Act provide for the delegation of key aspects of the governor's role to the Auckland office manager, with appropriate safeguards.

Bollard said the Reserve Bank spent time explaining the earthquakes in Christchurch in September last year and February this year and "that limited excessive financial market reactions".

"A bad Wellington earthquake with an epicentre in the nation's capital, could engender a more extreme financial market reaction, and it would be the Reserve Bank's role to intervene to ensure an orderly foreign exchange market if that proved necessary.

"If the country's political leadership and key administrative infrastructure were caught up in an earthquake, this could drive a bigger financial reaction, and make government policy responses much harder," he said.

He reiterated that the central bank had a working assumption of a $20 billion cost for the rebuild of Christchurch. This is equal to 10 percent of gross domestic product.

"We recognise that there is considerable uncertainty around these numbers and revisions to this estimate are likely to continue for some time," he said.

Overall, about $150 million of extra cash was sent to Christchurch in the week following the February earthquake, representing about $350 per resident.

"We learned a lot about ATM configuration to ensure operability, and the internet was very useful to provide up to date information on ATM availability.


"Since that time however, monetary policy has had to account for a number of significant developments,” he said. “These include the continuing sovereign debt concerns in Europe and related developments in financial markets. Business confidence appears to have now recovered well nationwide, and to a large extent also in New Zealand. We believe the cuts in the official cash rate assisted this."

Traders are betting Bollard will raise the official cash rate by 35 basis points over the next 12 months, according to the Overnight Index Swap curve.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Gordon Campbell: On Tiwai Point (And Saying “No” In Greece)

Its hard to see how Rio Tinto’s one month delay in announcing its intentions about the Tiwai Point aluminium smelter is a good sign for (a) the jobs of the workers affected or (b) for the New Zealand taxpayer. More>>

ALSO:

Half Empty: Dairy Product Prices Extend Slide To Six-Year Low

Dairy product prices continued their slide, paced by whole milk power, in the latest GlobalDairyTrade auction, weakening to the lowest level in six years. More>>

ALSO:

Copper Broadband: Regulator Set To Keep Chorus Pricing Largely Unchanged

The Commerce Commission looks likely to settle on a price close to its original decision on what telecommunications network operator Chorus can charge its customers, though it probably won’t backdate any update. More>>

ALSO:

Lower Levy For Safer Cars: ACC Backtracks On Safety Assessments

Dog and Lemon: “The ACC has based the entire levy system on a set of badly flawed data from Monash University. This Monash data is riddled with errors and false assumptions; that’s the real reason for the multiple mistakes in setting ACC levies.” More>>

ALSO:

Fast Track: TPP Negotiations Set To Accelerate, Groser Says

Negotiations for the Trans-Pacific Partnership will accelerate in July, with New Zealand officials working to stitch up a deal by the month's end, according to Trade Minister Tim Groser. More>>

ALSO:

Floods: Initial Assessment Of Economic Impact

Authorities around the region have compiled an initial impact assessment for the Ministry of Civil Defence, putting the estimated cost of flood recovery at around $120 million... this early estimate includes social, built, and economic costs to business, but doesn’t include costs to the rural sector. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news