Reserve Bank investigating other monetary policy tools

Thursday 30th June 2011

The Reserve Bank has been investigating the potential for other policy tools to help support its traditional official cash rate instrument in monetary policy, and will continue to look, Reserve Bank Governor Alan Bollard says.

Releasing the Reserve Bank's statement of intent for 2010 to 2013 today, Bollard acknowledged there was a lively debate in this country 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," he said.

On the economy, Bollard said New Zealand had emerged from its recession, benefiting from stronger growth in its major trading partners in China, Australia and emerging Asia.

But recovery remained sluggish in Britain and Europe, and sovereign debt concerns hovering over several European economies were disturbing financial markets, he said.

Although New Zealand had emerged from its recession, there were almost daily reminders that conditions remained fragile, especially in the global funding markets.

As indicated in its recent Monetary Policy Statement, the Reserve Bank expected to continue unwinding the 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," Bollard said.

As banking supervisors, the Reserve Bank was engaging in global discussions on changes to the international bank supervision regime which would help reduce the chances of future financial crises.

The statement of intent showed the Reserve Bank would continue to advance the implementation of the new non-bank deposit taker regime, alongside the gradual rationalisation of the finance company sector.

It would also continue to develop and implement the new prudential regime for the insurance sector.

At the same time, the Reserve Bank was 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.

The Reserve Bank's budget reflected the emerging environment. A new five-year funding agreement has been agreed for the period from July 2010 to June 2015.

For 2010-11, the Reserve Bank budget showed operating expenditure of $47.8 million, an increase of $900,000 over last year's funding agreement of $46.9m, reflecting the Reserve Bank's increased responsibilities in prudential supervision.

NZPA

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