By Pattrick Smellie
Thursday 12th February 2009 |
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And while both the Australasian economies were running uncomfortably high current account deficits, the banking system was largely unharmed by toxic lending and "in pretty good shape, really", said Spencer in a full-transcript interview with Businessspectator.com.au correspondent Isabelle Oderberg.
"While provisioning is increasing, given the economic downturn, it's not anything to be too worried about," and risk averse New Zealanders had dramatically improved national savings behaviour in recent times.
"The household sector savings has turned right around and is now very conservative,...consumption levels are very flat. So, the correction is under way."
The degree of economic pain still to be felt depended greatly on international financial markets continuing to finance the current account gap on reasonable terms. About 40% of the current account, which stands at 8.6% of GDP, is financed from offshore. Iceland's current account deficit at the time of its economic collapse was 22% of GDP.
After cutting the Official Cash Rate from a high point of 8.25% to 3.5% in less than 12 months, the RBNZ did not anticipate further rate cuts of such as size as January's 1.5% point cut.
Monetary policy was "running out of puff a bit globally" and there was still adjustment to occur in the real world economy and asset markets.
"It will take some considerable time because 1) I don't think asset prices have fully adjusted yet and 2) balance sheets have not readjusted in line with those new asset prices," said Spenser, who is head of financial stability at the RBNZ.
With governments becoming necessarily active players in financial markets, there was a risk of "overreaction on the regularity front".
"We are looking for regulatory improvements, but internationally there is a risk of overall on that front."
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