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Reserve Bank SOI shows commitment to stability

Reserve Bank SOI shows commitment to stability

The Reserve Bank's Statement of Intent 2010-2013 reflects a commitment to maximise its contribution to sustainable economic growth by ensuring financial system stability and price stability, Governor Alan Bollard said today when releasing the SOI.

New Zealand has emerged from its recession, benefiting from stronger growth in its major trading partners in China, Australia and emerging Asia. However, recovery remains sluggish in the UK and Europe, and sovereign debt concerns hovering over several European economies are disturbing financial markets.

Dr Bollard acknowledged there is a lively debate in New Zealand about the role of monetary policy in managing financial misalignments. "For our part, we are confident that medium-term price stability is the right objective for monetary policy. However, the Bank has been investigating the potential for macro-prudential policy tools to help support the traditional OCR instrument. The SOI shows we will continue this work," he said.

"As banking supervisors, we are engaging in global discussions on changes to the international bank supervision regime that will help to reduce the chances of future financial crises."

Dr Bollard said that the domestic economic recovery continues and, as indicated in the recent Monetary Policy Statement, the Bank expects to continue unwinding the current degree of monetary policy stimulus.

"While we have unwound most of the emergency liquidity support provided to the financial system during the financial crisis, our facilities remain under review given the current volatility in global markets." He added that, although New Zealand has emerged from its recession, there were almost daily reminders that conditions remain fragile, especially in the global funding markets.

Dr Bollard said the SOI shows the Bank will continue to advance the implementation of the new Non-Bank Deposit Taker (NBDT) regime, concurrent with the gradual rationalisation of the finance company sector. The Bank will also continue to develop and implement the new prudential regime for the insurance sector.

At the same time, the Bank is guarding against other potential crises with a key initiative being the establishment of a business support centre in Auckland to improve its business continuity and disaster-recovery capability.

Dr Bollard said the Bank's budget reflects the emerging environment. A new five-year Funding Agreement has been agreed with the Minister for the period 1 July 2010 to 30 June 2015.

"While ensuring that funding is available to carry out existing functions and new responsibilities, we have also been particularly conscious of the need to maintain strong financial disciplines and to carefully prioritise expenditure proposals," he said.

The Bank's budget for 2010-11 shows operating expenditure of $47.8 million, an increase of $0.9 million over last year's Funding Agreement of $46.9 million, reflecting the Bank's increased responsibilities in the Prudential Supervision area.

"This SOI reflects our response to the emerging financial and economic environment," Dr Bollard concluded.

ENDS

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