RBNZ macro-prudential tools get NZ government tick
(17 May 2013 – New Zealand) New Zealand’s Finance Minister, Bill English signed a Memorandum of Understanding with Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler this week, in approval of the central bank’s new set of tools to cool asset bubbles.
English granted the bank regulator the ability to require lenders to hold more capital on their balance sheets against certain assets, or restrict the level of low-equity home loans.
In a statement English said that under the agreement Wheeler will make his final policy decision independent of the government, though the Governor is expected to advise the Finance Minister of any macro-prudential policy decision.
'The objective of the bank's macro-prudential policy is to increase the resilience of the domestic financial system and counter instability in the domestic financial system arising from credit, asset price, or liquidity shocks,' the memorandum said. 'Macro-prudential tools do not replace conventional prudential regulation, but may be used from time to time to help manage the risks associated with the credit cycle.'
There has been growing pressure for the RBNZ to cut interest rates to reduce the appeal of the currency, which has been hindering exporters, while a heating property market has provided a counterbalance by threatening inflationary pressures.
The memorandum said the Reserve Bank will have to consider the impact on monetary policy settings when using the new tools, and 'in most instances macro-prudential instruments will reinforce the stance of monetary policy.'
The RBNZ’s four new tools are adjustments to banks' core funding ratio, required capital buffers during excessive credit growth, capital requirements for specific assets, and restrictions on high loan-to-value ratio mortgage loans.
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