The Reserve Bank of New Zealand held a press conference on Wednesday to give a report on the financial stability of the economy. This report is usually released twice a year and provides insights into the bank’s view of inflation, growth, and other economic conditions that will affect interest rates in the future.
RBNZ governor Alan Bollard said that New Zealand’s financial system is able to support economic growth, however, still faces a volatile environment.
He mentioned that “The global economic recovery is now broader, and strong growth in Asia is supporting commodity producers like New Zealand and Australia. However, global wholesale funding markets remain fragile, given stretched fiscal positions and banking sector problems in some European countries,”
Dr Bollard referred to the earthquake that struck the country in February which caused financial stress for both businesses and households. The insurance sector was strained by huge claim flows.
However, the central bank is supportive in the rebuilding of Christchurch, and this increased activity will add momentum to the economy. Meanwhile, as there is increased demand for access to credit, the New Zealand banking system is continuing to strengthen.
As Deputy Governor Grant Spencer commented that “Bank profits have recovered over the past six months and bad debt charges declined. Bank funding has moved to a more stable footing and capital ratios are relatively high. Non-performing loans are elevated but remain manageable.”
Regarding the New Zealand Dollar, the central bank said a fall in the currency would help rebalance the economy which remained sluggish. The kiwi briefly slipped against the Us Dollar on these comments, by about 10 pips from 0.7949 down to 0.7946.
But it soon rose to as high as 0.7950, buoyed by commodity and equity markets which are picking up.