Reserve Bank works with financial sector to ensure financial stability

by Roxanne Libatique01 Apr 2020

The Reserve Bank of New Zealand (RBNZ) has offered assurances that it has been working with the government and the financial sector to ensure cash flow and financial system confidence amid the COVID-19 pandemic.

RBNZ Governor Adrian Orr confirmed that they had undertaken actions to ensure that banks are fully equipped to support Kiwis during the alert level 4 lockdown. It also recently dropped the official cash rate (OCR) to 0.25%, which is expected to remain unchanged for at least the next 12 months.

“In these difficult times, we are working to ensure New Zealanders are confident in their financial system, knowing that they can access their cash when needed to manage through,” Orr said. “We also began purchasing up to $30 billion of government bonds. These activities have ensured that interest rates will remain low. We also have other tools at the ready to keep the cost of borrowing low for as long as we need to.”

“Our role as ‘banker to the banks’ has also enabled us to keep the cash-flow moving around the economy – between banks, firms, households, and the government. We have been working – virtually – hand in hand with the New Zealand Treasury.”

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The central bank also opened new liquidity facilities that banks could use if they need additional cash to help meet the demands of customers, businesses, and other parts of the financial sector. It also ensured that the mortgage payment deferral scheme does not count against borrowers’ credit rating or banks’ capital needs.

“Our focus is on the task in hand – confidence and cash-flow. We will ensure that the financial system and the critical people that keep it functioning remain a source of strength for New Zealand,” RBNZ Deputy Governor Geoff Bascand explained. “Just like with every business, even those in the financial sector will face challenges during this period. While we’re attuned to potential stresses with individual financial firms, we’re not losing sight of the stability of the system as a whole.”

“New Zealand’s financial system is resilient, with significant capital and liquidity buffers. This means New Zealand’s financial institutions can support people through these tough times.”

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