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NZ central bank to accept corporate debt as collateral

Friday 12th December 2008

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The Reserve Bank of New Zealand has widened the range of securities it will accept as collateral for loans, including investment grade corporate bonds, bills and assert backed securities.

The move applies to securities denominated in New Zealand dollars and is expected to be a temporary measure while financial markets are unsettled.

"We are taking these steps to further enhance system liquidity and ease some of the current pressures on corporate sector funding," Deputy Governor Grant Spencer said in a statement.

Each security would be considered on a case-by-case basis, Spencer said. The liquidity measures don't mean the central bank will be lending direct to companies though they are likely to make corporate debt more liquid and therefore a more attractive investment prospect for banks and portfolio managers, he said.

The securities will include those guaranteed by the government, corporate securities rates at least BBB-, shorter-term securities rated A2, F2, P2 or better, and New Zealand dollar asset-backed securities rated AAA, A1+, F1+ or P1, according to the statement.

In October, the bank said it would temporarily accept residential mortgage-backed securities as collateral to improve liquidity in the banking system. The move mirrors action by the Australia's central bank, which yesterday relaxed restrictions on the use of securities for repurchase agreements, including RMBS.

By Jonathan Underhill

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