New Zealand’s economy and financial system remain on a sound footing despite continuing challenges in the global environment, according to the Reserve Bank’s Annual Report 2016-17 released today. The 2016-17 financial year saw a pickup in economic activity in most major economies, although inflation and wage pressures remained subdued Supported by improving domestic economic conditions, the New Zealand banking system remains sound and well capitalised. “As a small, open economy, developments beyond our shores have a large influence on New Zealand’s economic outcomes,” former Governor Graeme Wheeler says in the Report. Mr Wheeler finished his term as Governor on 26 September. Acting Governor Grant Spencer said that in the last financial year the Bank undertook comprehensive research into the drivers of low inflation and in particular the formation of inflation expectations. “We have also focused a lot of policy work on strengthening the financial system against potential shocks. "Rapid house price inflation in recent years led to increased financial stability risks. In response, the Bank introduced loan-to-value restrictions on house lending, including tighter LVR restrictions on property investors from October 2016. These measures have improved the resilience of the banking system. "We have revised the outsourcing policy for larger banks, initiated improvements to banks’ quarterly disclosures, and undertaken stress testing.” During the year, the IMF undertook a comprehensive review of New Zealand’s financial sector regulatory regime through its Financial Sector Assessment Program (FSAP). “The IMF recognised a number of positive features of New Zealand’s institutional framework and the Bank’s policy approach, and we are assessing their recommendations aimed at strengthening the regulatory framework,” Mr Spencer said. In other highlights the Board conducted its annual overall assessment of the performance of the Bank, and this is included in the Bank’s Annual Report. The Board also noted that the Bank retained high audit ratings and achieved its operational objectives. A dividend of $145 million has been paid to the Government. The Annual Report is available as a downloadable PDF and the Bank has produced two videos for a general audience designed to communicate the Bank’s role in maintaining a sound and efficient financial system through the use of macro prudential policy. More information• The Reserve Bank’s Annual Report 2016-17 (pdf)• Video 1 - Global forces• Video 2 – Keeping banks healthy

| A RBNZ release  ||  September 29,  2017   |||