The Reserve Bank continues to broaden its engagement with a diverse range of stakeholders to provide accountability, and to promote understanding and dialogue, Head of Communications, Mike Hannah, said in a speech released today.
Speaking to the Canterbury branch of the Institute of Directors in Christchurch yesterday evening, Mr Hannah said that the Bank’s relationships were crucial to achieving the Bank’s policy objectives.
“We rely heavily on the behaviours of households and businesses being consistent with our policy objectives, ranging from their expectations of price stability and bank resilience, or credit growth, to confidence in banknotes and the payments systems,” he said.
“The Bank places a high priority on communicating with a wide spectrum of audiences, through a multitude of channels, and we are adapting to changing audience needs.”
Mr Hannah said the Bank is planning to undertake its second External Stakeholder Engagement Survey in the first half of 2018. A survey in 2014 showed that the Bank’s audiences had different perspectives and expectations, meaning that the Bank needs to communicate in the context and language appropriate to each group.
“We particularly noticed that the public and businesses had lower familiarity with the Bank, compared with specialist financial market or media groups.”
To better connect with its general public audience, the Bank has developed a range of web content – explanatory videos and animations, author interviews and audio podcasts – and ventured into social media channels such as YouTube, Twitter, Facebook and SoundCloud.
“But we have been cautious about using these media in a two-way fashion, such as ‘following’ other users, publicly responding to comments, or sharing other people’s content. This because of the risk of having informal social media statements being read as formal signals, as well as reputational risks that a central bank has to be conscious of.”
The Bank has an extensive programme of off-the-record presentations for business audiences around New Zealand and has expanded this to around 120 a year, as well as outreach into schools, universities and other research institutions.
“Most of these events are off-the-record as they provide a unique opportunity for dialogue, with the Bank listening and responding to questions and candid comments from a broad range of New Zealanders, whose understanding is so important to our price and financial stability objectives.”
The Bank’s on-the-record speeches, their content and timing, will always be driven by policy needs, and our interactions with markets and media are conducted within the disciplines enforced by financial market sensitivities.
“We recognise that real-time and near-real-time media reach far into an investment world beyond New Zealand and can influence our interest and exchange rates. Care has to be taken by a central bank in communicating into this world.
“We will continue to engage with the news media, through briefings, interviews, press conferences, and responses to inquiries. Equally, we will continue to provide access for technical discussions with financial market analysts.”
The Bank will continue to foster improvements in its regulatory relationships, which have benefitted from longer consultation periods on proposed regulations, and greater liaison with industry through workshops.
“Our contact with Parliamentary and Government stakeholders will remain frequent, extensive, and open, to promote understanding, and also to deliver accountability for the policies and tools that we are charged with to promote New Zealand’s economic growth.”
An article published today in the Reserve Bank Bulletin provides an overview of the importance of benchmarks, which are used to price, value and evaluate financial market transactions.
The Bulletin article notes the need for financial market benchmarks to be reliably measured, transparent and supported by strong governance arrangements. The article also explores the way that regulators worldwide are implementing reforms for interest rate benchmarking systems and processes. This follows the erosion in trust in benchmarks that occurred after the LIBOR scandal, where a number of international banks in London were found to have manipulated the LIBOR benchmark interest rates.
Significant work has been undertaken in recent years to improve the reliability, transparency, and governance in New Zealand’s key short-term interest rate benchmark, known as BKBM. The New Zealand Financial Markets Association has carried out this work and has generally brought BKBM in line with guiding principles published by the International Organization of Securities Commissions and Financial Stability Board.
The Bulletin article notes that significant declines in volumes traded during the BKBM rate set in recent years have raised concerns about the reliability of the BKBM as a benchmark rate. The Bulletin article discusses this trend as well as potential solutions for a recovery in the efficiency and liquidity of the New Zealand bank bill market.
The sensitivity of the New Zealand economy to global developments has been underlined in the Reserve Bank Bulletin.
An article published today examines the current economic expansion since 2009, comparing it with earlier expansions in order to highlight current features.
The current period has unique characteristics. While this economic expansion has in part been shaped by the Canterbury rebuild, the rebuild itself has been less inflationary than the Reserve Bank initially feared. This current expansion also includes the largest net immigration cycle (as a share of working age population) since at least the late 1970s, but the consequences for inflationary pressure appear more muted than in the past.
Productivity growth has been weak, consistent with the continued decline in the estimated neutral interest rate since the Global Financial Crisis. The Reserve Bank has also found that household consumption appears less responsive to increased housing wealth than during the previous expansionary period.
Some of the features presented in the article have simply been revealed with the passage of time, and some reflect the Reserve Bank’s evolving understanding of how the economy operates. That the Reserve Bank has been confronted with such developments or challenges to our understanding is an enduring feature of the environment in which monetary policy operates. Studies of the kind published today provide valuable insight for the Reserve Bank’s on-going understanding of an evolving economy, enabling policy to adjust as quickly as possible to new information.
As is usual ahead of a government bond maturity, and as advised by the New Zealand Debt Management Office on 25 May 2017, the Reserve Bank offers to purchase NZ government bonds maturing 15 December 2017 for liquidity management purposes. Purchases will either be held to maturity on the Bank's balance sheet, or on-sold to the New Zealand Debt Management Office (where the bonds will be cancelled).
This offer opens at 10:00am on 19 June 2017 and will remain open until further notice. Interested parties should telephone their offers, volume and rate, to the Domestic Markets section on (04) 472 0074/472 0075, preferably between the hours of 10:00am to 12:00pm and 2:00pm to 4:00pm daily.
Preferred settlement dates will be determined by projected liquidity flows. Transactions will be priced using the yield to maturity discount (T-bill) formula. This operation has been undertaken to manage near term liquidity flows and has no implications for the Bank's monetary policy stance.
A record number of entries to the Reserve Bank’s Monetary Policy Challenge resulted in tough competition with six schools selected for the national final.
The annual competition attracted entries from 53 secondary schools from across New Zealand to step into the shoes of a Reserve Bank economist.
Four Auckland schools – Macleans College, Takapuna Grammar, Kristin School and Auckland International College were named as finalists, along with James Hargest College, Invercargill and St Patrick's College (Kilbirnie), Wellington. Kristin School is the only school from the 2017 finalists to have previously won the title.
The competition is designed to increase students’ understanding of monetary policy by working as a team to assess economic conditions and make a prediction for the Official Cash Rate (OCR) decision. The competition is open to Year 12 and 13 Secondary School students and can also contribute towards NCEA achievement standards.
Reserve Bank economists, who judged the entries, were impressed with the quality of the presentations and the way the schools interpreted the current economic environment.
“We were looking for teams that understood Monetary Policy, could communicate this well and answer questions to apply their knowledge,” Judges Amy Rice and Amber Watson said.
“Students did well analysing issues that are of current interest to the Bank, such as the effect of migration and the drivers of consumption.”
The finalists will travel to the Bank in Wellington for the National finals on 5 July to give an oral presentation and compete for the title of Challenge winner and the winning team will be invited back to the Reserve Bank on 10 August 2017 to attend the Monetary Policy Statement media conference.
Finance Minister Steven Joyce and incoming Acting Reserve Bank Governor Grant Spencer today signed a renewed Policy Targets Agreement (PTA), which sets out specific targets for maintaining price stability.
The Policy Targets Agreement takes effect on 27 September 2017, after Reserve Bank Governor Graeme Wheeler completes his term on 26 September 2017.
It will apply from 27 September 2017 until 26 March 2018.
There is no change from the existing agreement which requires the Reserve Bank to keep future CPI inflation outcomes between 1 per cent and 3 per cent on average over the medium term, with a focus on keeping future average inflation near the 2 percent target midpoint.
The renewed PTA will provide continuity, consistency and stability for the monetary policy target over the election period and during the period of appointment of a new Governor.
The Government accounts for the ten months to 30 April 2017 show a surplus of $2.5 billion, although about $1 billion of that is due to timing differences that are expected to reverse out in May, Finance Minister Steven Joyce says.
“While the accounts for the year-to-date are $1.6 billion stronger than was forecast at the Budget Economic and Fiscal Update, the bulk of this change is due to a timing difference of company taxes,” Mr Joyce says. “Treasury and Inland Revenue expect most of that to reverse in May, and at this stage Treasury expects the 2016/17 accounts to be broadly as forecast.”
Core Crown revenue was $1.1 billion higher than expected for the ten month period, while Core Crown expenditure was $400 million less than what was expected.
Net debt is currently at 24 per cent of GDP.
“It is important not to take too much from a single month’s figures particularly because of the timing differences noted by the Treasury,” Mr Joyce says. “However the accounts overall do underline the Government’s improving fiscal position as a result of our strong economic plan.
“It is only by having this strong economic plan that we get to make the sort of choices we were able to make in the recent budget, and only a strong economic plan will give us the capacity to make more positive decisions into the future.”
In his most recent book, Can We Avoid Another Financial Crisis? Steve Keen leaves readers in little doubt he believes we're heading that way unless we adopt a fundamentally different approach to private debt. Australian Steve Keen was one of only a handful of economists to predict the Global Financial Crisis.
He says it’s all about debt – specifically private debt.
“We’re focussing on the wrong topic. We’re so focussed on government debt, what actually caused the crisis was run away private debt.”
And he says there are a number of ‘debt zombies’ in the world economy - New Zealand among them.
He calls New Zealand ‘Schrodinger’s Zombie’.
The walking dead have already had a financial crisis, he says, and have been experiencing weak growth, while 'zombie-to-be' countries avoided the 2008/2009 crisis by borrowing their way through it.
Now they have a bigger debt burden to deal with when the next crisis hits, he says.
“New Zealand sits in both camps. It had 190 percent of debt to GDP back in 2009, it bottomed out at about 170 percent then went back up to 180 percent of GDP. Most of that’s in the household sector so that’s driven the housing bubble in New Zealand, which of course the authorities normally deny, but it’s clearly there although in my opinion starting to turn right now.
“So you guys have had two bites of the zombie cherry.”
He says there is no doubt the bubble will burst.
“The bubble will burst in the next one to two years - there’s been a real acceleration in house prices since 2012, they’ve increased by about 60 percent. But what I’m seeing now is the motivating force for rising house prices is rising mortgage credit. The wind in that bubble is starting to run out.”
New Zealand’s financial system remains sound and the risks facing the system have reduced in the past six months, Reserve Bank Governor Graeme Wheeler said today when releasing the Bank’s May Financial Stability Report.
“The outlook for the global economy has been improving but global political and policy uncertainty remains elevated and debt burdens are high in a number of countries. A sharp reversal in risk sentiment could lead to higher funding costs for New Zealand banks and an increase in domestic borrowing costs. New Zealand’s banks are vulnerable to these risks because of their increasing reliance on offshore funding for credit growth,” Mr Wheeler said.
“House price growth has slowed in the past eight months, in response to tighter loan-to-value ratio (LVR) restrictions, and a more general tightening in credit and affordability pressures in parts of the country. While residential building activity has continued to increase, the rate of house building remains insufficient to meet rapid population growth and the existing housing shortage. House prices remain elevated relative to incomes and rents, and any resurgence would be of concern.
“Dairy prices have recovered significantly in the past 12 months, and the majority of dairy farms are likely to have returned to profitability in the 2016/17 season. However, parts of the dairy sector are carrying excessive debt burdens, and remain vulnerable to a fall in income or an increase in costs. Banks should continue to closely monitor and maintain full provisioning against lending to high risk farms,” he said.
Deputy Governor Grant Spencer said “The banking system maintains strong capital and funding buffers, and profitability remains robust. The banking system appears to be operating efficiently when compared with other OECD countries, based on metrics such as cost-to-income ratios, non-performing loans and interest rate spreads.
“Banks have generally tightened credit conditions in light of funding constraints and the increasing risks around housing. Banks are seeking to reduce their reliance on offshore funding and have raised deposit rates. The Reserve Bank supports a cautious approach to managing foreign debt, in light of lessons learned in the GFC.
“While the LVR restrictions have increased the banks’ resilience to any fall in house prices, a significant share of housing loans are being made at high debt-to-income (DTI) ratios. Such borrowers tend to be more vulnerable to any increase in interest rates or declines in income. The Reserve Bank will soon release a consultation paper proposing the addition of DTI restrictions to our macro-prudential toolkit.
“The Reserve Bank is making progress on a number of other initiatives. A review of bank capital requirements is underway and we recently released an issues paper on the intended scope of the review. We recently concluded a review of the outsourcing policy for registered banks, and the Bank and other agencies are assessing the recommendations from the International Monetary Fund’s recent (FSAP) review of New Zealand’s financial system.”
Email followed on heels of major international flap
A scam email today is the latest in a concerted fakes sent out to Xtra users. The current one (see below) is filled with grammatical and spelling mistakes that reveal it as a fake. It follows a similar email drop last week (see below) inviting recipients to access a fake Westpac site.
The barrage pin points the need for a central bank 0800 query pool on suspect emails. The email followed on the tail of the global WannaCry cyber attack and at a time when New Zealand households still remain plagued by phone-ins from bogus Microsoft “certified” technicians now seeking to take advantage of the enhanced fear of cyber implant disruptions.
The first bogus Westpac email reads:-________________________________
Dear Westpac Customer,
New Successful Payment.For more information about this payment please follow the link below:https://westpac.co.nz/transaction
If you received this message in your SPAM/BULK folder, it is because of the restrictions imposed by your Mail/Internet Service Provider.
2017 Westpac New Zealand Limited.
The second and most recent fake email is rather more convincing being centred on account verification procedures. Its message:-
Due to the recent upgrade of our servers, we have urged all our online banking users for possible verfication.
Kindly use our website below to verify your profile to avoid account termination.
Thank you for choosing us
Westpac Bank New Zealand.______________________________A problem recipients encountered with these email mass-drops, is that they feature the inference when it landed in a Westpac customer in-box that it was specially targeted at them.
In the instance of the first email inquirers had to compete with phone-ins in the regular course of bank business, as well as those now alerted by the bogus email.
MSC Newswire has lodged an enquiry with Westpac seeking to discover the source of the bogus email as well as more details on its modus operandi.
The arrival of the second such bogus email points up the problem that the Australian trading banks have in coping with this problem.
The incidents point up the need for a cooperative banking rapid response enquiry centre for customers to obtain information about all doubtful emails.
Banks of course do not contact customers with emails. Only by traditional post. Or via a customer-prompted and subsequently verified phone call.
Aware of this the international email fraudsters seek nonetheless to entice a response, in this case by conjuring up the notion of an inward payment.
The banks are no strangers to cooperative efforts.
They have profited greatly by keeping their customers at an economic distance by electronic banking, thus reducing their premises overheads.
A small proportion of these savings should now be re-invested in a quick-response shared call centre dealing with bogus emails which are now demonstrably on the increase.