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

 

Power Outages, Roads Close: Easter Storm Moving Down Country

The NZ Transport Agency says storm conditions at the start of the Easter break are making driving hazardous in Auckland and Northland and it advises people extreme care is needed on the regions’ state highways and roads... More>>

ALSO:

Houses (& Tobacco) Lead Inflation: CPI Up 0.3% In March Quarter

The consumers price index (CPI) rose 0.3 percent in the March 2014 quarter, Statistics New Zealand said today. Higher tobacco and housing prices were partly countered by seasonally cheaper international air fares, vegetables, and package holidays. More>>

ALSO:

Notoriously Reliable Predictions: Budget To Show Rise In Full-Time Income To 2018: English

This year’s Budget will forecast wage increases through to 2018 amounting to a $10,500 a year increase in average full time earnings over six years to $62,200 a year, says Finance Minister Bill English in a speech urging voters not to “put all of this at risk” by changing the government. More>>

ALSO:

Prices Up, Volume Down: March NZ House Sales Drop 10% As Loan Curbs Bite

New Zealand house sales dropped 10 percent in March from a year earlier as the Reserve Bank’s restrictions on low-equity mortgages continue to weigh on sales of cheaper property. More>>

ALSO:

Scoop Business: Chorus To Appeal Copper Pricing Judgment

Chorus will appeal a High Court ruling upholding the Commerce Commission’s determination setting the regulated prices on the telecommunications network operator’s copper lines. More>>

ALSO:

Earlier:

Cars: Precautionary Recalls Announced For Toyota Vehicles

Toyota advises that a number of its New Zealand vehicles are affected by a series of precautionary global recalls. Toyota New Zealand General Manager Customer Services Spencer Morris stressed that the recalls are precautionary. More>>

ALSO:

'Gardening Club': Air Freight Cartel Nets Almost $12 Million In Penalties

The High Court in Auckland has today ordered Swiss company Kuehne + Nagel International AG to pay a penalty of $3.1 million plus costs for breaches of the Commerce Act. Kuehne + Nagel’s penalty brings the total penalties ordered in this case to $11.95 million ... More>>

ALSO:

Crown Accounts: Revenue Below Projections

Core Crown tax revenue has increased by $1.9 billion (or 5.0%) compared to the same time last year. However this was $1.1 billion less than expected and is reflected across most tax types, continuing the pattern of recent months. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news