Reserve Bank Taking Further NZ Liquidity Measures

December 12, 2008 New Zealand Finance  No comments

The Reserve Bank of New Zealand expanded the range of securities that it will except for use in its Liquidity Operations.

With an emphasis on protecting the New Zealand financial system from unforeseen future financial fluctuations or negative situations, the Reserve Bank of New Zealand (RBNZ) has taken measures to ensure a high level of liquidity is available. The new policy is also a response to the more prudent, less liquid attitude of banks in today’s environment.

The RBNZ policy change revolves around the type of collateral that banks may offer the RBNZ. The new inclusions are: securities guaranteed by the New Zealand Government, New Zealand corporate securities with a long-term raring of BBB- or better, New Zealand corporate securities with a short-term rating of A2, F2, P2 or better, and NZD Asset Backed Securities rated AAA, A1+, F1+ or P1.

RBNZ press releases stated that this is to be seen as a temporary measure and that it would have no impact on the monetary policy of the Reserve Bank of New Zealand.

Deputy Reserve Bank Governor Grant Spencer stated in the same release that these changes do not mean that the Reserve Bank would be looking at lending direct to the corporate sector, but as a it would be further included in the banks allowable collateral, the actions would serve to make corporate investment more attractive (and thereby liquid) to banks and portfolio managers.