NZ rate cuts speculated
(14 November 2011 – New Zealand) If the European debt crisis continues to worsen, the Reserve Bank of New Zealand (RBNZ) may have to cut interest rates next year.
Speculation came after RBNZ governor Alan Bollard announced that the increased risk to the economy and the financial system from the European debt crisis had forced it to delay the introduction of tougher funding rules for banks.
In the wake of the Global Financial Crisis (GFC), which began in 2008, the RBNZ created the core funding ratio - a means of ensuring New Zealand banks were not too reliant on international markets for borrowing.
The ratio has made banks increase the level of funding they raise from term deposits in New Zealand and from longer term bond issues internationally. This ratio was to have increased from 70 percent to 75 percent by July next year but will be delayed until January, 2013.
Bollard, releasing his latest Financial Stability report, said many countries remained under stress due to the amounts of private and public debt.
Global debt market conditions had worsened since May and banks were likely to face much higher funding costs over the next few months than earlier this year, Bollard said.
'Markets have been particularly concerned about the sovereign debt situation in Greece, and the potential for contagion to other countries.
'This has made access to offshore debt markets more challenging for New Zealand's banks,' Bollard said.
Deputy Governor Grant Spencer said New Zealand's banking system was better placed to weather the current market turbulence than at the start of the GFC.
Banks had increased their reserves, held more retail deposits and their wholesale funding was over longer terms, making them less vulnerable to international money market problems.
In the wake of the Global Financial Crisis (GFC), which began in 2008, the RBNZ created the core funding ratio - a means of ensuring New Zealand banks were not too reliant on international markets for borrowing.
The ratio has made banks increase the level of funding they raise from term deposits in New Zealand and from longer term bond issues internationally. This ratio was to have increased from 70 percent to 75 percent by July next year but will be delayed until January, 2013.
Bollard, releasing his latest Financial Stability report, said many countries remained under stress due to the amounts of private and public debt.
Global debt market conditions had worsened since May and banks were likely to face much higher funding costs over the next few months than earlier this year, Bollard said.
'Markets have been particularly concerned about the sovereign debt situation in Greece, and the potential for contagion to other countries.
'This has made access to offshore debt markets more challenging for New Zealand's banks,' Bollard said.
Deputy Governor Grant Spencer said New Zealand's banking system was better placed to weather the current market turbulence than at the start of the GFC.
Banks had increased their reserves, held more retail deposits and their wholesale funding was over longer terms, making them less vulnerable to international money market problems.
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