Banking system now more resilient, says governor
Monetary policy tools introduced by the Reserve Bank of New Zealand at the start of the pandemic are now being unwound.
The tools included the large-scale asset purchase programme (LSAP) which expanded to include up to $60 billion of bond purchases, New Zealand Government inflation-indexed bonds added to eligible purchases and $3 billion of Local Government Funding Agency (LGFA) bonds added to potential LSAP.
The RBNZ has remained focused on supporting New Zealand’s economic recovery through the COVID-19 pandemic and the monetary policy tools were designed to lower borrowing costs to households and businesses by injecting money into the economy.
The central bank released its Annual Report 2021 to 2022 on October 11. The RBNZ said it played a vital supporting role in New Zealand’s economic recovery and the financial system remaining sound throughout the pandemic.
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“In the period covered by this annual report, we have assisted in delivering a sound and efficient financial system, a robust and fit-for-purpose payment and settlement systems and money and cash availability for New Zealand’s needs,” said RBNZ governor Adrian Orr (pictured above).
“A highlight for us has been the implementation of the Reserve Bank of New Zealand Act 2021, ensuring we continue to evolve into a modern, agile and transparent central bank while strengthening our governance arrangements and accountability.”
In the report, the RBNZ confirmed consumer price inflation was at 7.3% as of June 30, 2022, well above the 1% to 3% target band and New Zealand’s unemployment rate was currently sitting at 3.3%.
“The Monetary Policy Committee (MPC) noted employment is above its maximum sustainable level. Meanwhile, financial stability and financial institutions remain sound with banks’ capital levels continuing to strengthen ahead of the higher regulatory requirements that will be introduced in the next few years,” he said.
“The MPC raised the official cash rate from a low of 0.25% to 2.00% as of 25 May 2022.”
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Orr said the Reserve Bank’s 2021 stress test showed New Zealand’s banking system had a stronger level of resilience than a year ago and was well placed to support the economy through severe downturns.
“Banknotes and coins in circulation were up by $0.8 billion to $9 billion during 2021/22 after the subdued demand for currency in 2020/21, following record 2019/20 issuances. Due to COVID-19, the currency in circulation increased by 10%,” Orr said.
“Since the onset of the pandemic, the currency in circulation has been variable, influenced by factors such as significant public withdrawals in March 2020, changing payment and shopping preferences, reduced cash services for individual and retail customers and banks maintaining higher cash balances to mitigate logistics and demand risks.”
Orr said while the global and domestic economic environment remained challenging, including ongoing inflationary pressures, the Reserve Bank progressed core areas of work to support New Zealand’s financial stability.
“The RBNZ is also responding to societal challenges by launching a work programme to better understand Māori access to capital in the New Zealand economy and taking action to understand and mitigate the risks of climate change to financial stability,” he said.
“We have made continued progress on our transformation as per our five-year funding agreement signed with the Minister of Finance in June 2020 which enables us to invest in people, capability and capacity so we can sustain a central bank that is fit for the future.
“This includes our enforcement and supervisory activity to strengthen the financial system and in our digital capability, which ensures we have technology and systems that meet our needs.”
