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Mahi Tahi: Working Together To Ensure Cash-flow And Confidence

Te Pūtea Matua – the Reserve Bank of New Zealand - is working closely with the whole of government and industry to ensure financial stability.

“In these difficult times we are working to ensure New Zealanders are confident in their financial system, knowing that they can access their cash when needed to manage through,” Governor Adrian Orr says.

“Since the onset of COVID-19 in New Zealand, the Reserve Bank has undertaken a broad range of activities to ensure our banks are well positioned to meet the needs of New Zealanders.

“We have lowered the Official Cash Rate to 0.25 percent and have committed to it remaining at this record low for at least the next 12 months. We also began purchasing up to $30 billion of government bonds. These activities have ensured that interest rates will remain low. We also have other tools at the ready to keep the cost of borrowing low for as long as we need to.

“Our role as ‘banker to the banks’ has also enabled us to keep the cash-flow moving around the economy – between banks, firms, households, and the government. We have been working – virtually – hand in hand with the New Zealand Treasury.”

We have opened up new liquidity facilities for banks to use if they need additional access to cash so they can meet demands from businesses, households and other parts of the financial sector. There are a range of tools banks can use to swap their assets for our cash in order to keep lending. These include the usual overnight borrowing facilities, through to longer-term ‘asset-for-cash’ swap arrangements.

Earlier today, we announced an additional liquidity facility that enables banks to swap their holdings of Corporate Paper (big business debt issuances) and other Asset Backed Securities for our cash. This will bolster banks’ ability to cash-flow their corporate clients.

And there are more plans on the drawing board to absolutely ensure banks are able to implement the Government’s announced $6.25 billion Business Finance Guarantee Scheme, and their own six-month mortgage deferral scheme.

As the prudential regulator of banks, we have enabled and encouraged banks to dip into their rainy day capital stores, opening up an additional $47billion of credit availability, with the same again available before reaching regulatory minimums. And we have ensured that the mortgage payment deferral scheme does not count against the borrowers’ credit rating or banks' capital needs.

We have also put on hold a significant number of important, longer-term, regulatory initiatives so as to enable financial institutions to reprioritise their efforts. Our banks and financial institutions understand their critical role in mitigating the severe economic effects of COVID-19.

“Our focus is on the task in hand – confidence and cash-flow. We will ensure that the financial system and the critical people that keep it functioning remain a source of strength for New Zealand,” Deputy Governor Geoff Bascand says.

“Not only are we supporting the country’s retail banks, we are also working closely with other parts of the finance sector including insurers, credit unions, building societies and finance companies. Our work is to best ensure they can support their customers.

“Just like with every business, even those in the financial sector will face challenges during this period. While we’re attuned to potential stresses with individual financial firms, we’re not losing sight of the stability of the system as a whole.

“New Zealand’s financial system is resilient, with significant capital and liquidity buffers. This means New Zealand’s financial institutions can support people through these tough times.”

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