alan bollard : a financial system that works for new zealand excerpt from an address by dr alan bollard, governor of the reserve bank of new zealand, to the financial services institute of australasia, wellington, 23 may 2006. * * * " in our latest financial stability report ( fsr ), issued on 19 may, we assess that, over recent months, the new zealand and global financial systems have continued to perform soundly. however, signs of increased volatility have emerged in some markets ( eg, commodities and foreign exchange ) and some major challenges to financial stability persist. " the reserve bank's interest in financial stability and banking regulation is to ensure there is adequate identification, pricing, and allocation of risks to the new zealand financial system. " many of the current challenges to new zealand financial system stability were identified in our november report, and some have increased. for example, new zealand banks have continued to raise their exposure to the housing market. a very large proportion of foreign capital being utilised in new zealand is now intermediated through the banking sector via secured residential mortgage lending. a slower housing market will thus pose challenges to bank risk management and we will continue to monitor this closely, especially when implementing the new bank basel ii capital requirements regime. " in addition, some ( but not all ) finance companies raising funds from the public have accumulated large exposures to property and consumer finance. these institutions could be hardest hit by slowing spending ; especially those that have recently experienced rapid growth and have limited experience in managing downturns. " new zealand households have also been increasingly ready to purchase property for investment purposes. household indebtedness has increased significantly, so that over time households have raised their financial vulnerability to interest rate changes, unemployment, and swings in rental incomes and property capital values. on balance, the data suggest that the new zealand household sector has continued to increase its financial concentration and overall debt exposure. " a slower growing economy will bring challenges to some households, in particular lower and middle income households that have large debt - servicing needs. " meanwhile, new zealand's financial markets have remained sound. the decline in the new zealand dollar over the march quarter, from its previous exceptionally high level, represents some reduction in risks. the depreciation was managed in the foreign exchange market with good liquidity and efficient pricing, and was principally a cyclical adjustment to better reflect the underlying fundamentals of the economy. " we have also been working with banks to

donald t brash : should the reserve bank of new zealand have eased as fast as the federal reserve? speech by dr donald t brash, governor of the reserve bank of new zealand, to the rotary club of auckland, auckland, new zealand, 21 may 2001. * * * introduction over recent days, the reserve bank of new zealand has puzzled a lot of people – indeed even angered a few! – because we have been slower to ease monetary policy than they have expected or wanted, and slower than central banks in some other countries. surely, it is argued, the reserve bank must be able to see that the world economy has slowed sharply, and monetary policy should be eased. surely, it is argued, the reserve bank must be able to see that the domestic economy has been sluggish, business and consumer confidence are down, and monetary policy should be eased. surely, it is argued, the reserve bank must be able to see that the drought has been serious and will have a potentially big impact on production next season, and monetary policy should be eased. surely, it is argued, the reserve bank must be able to see that the us central bank, the federal reserve, has eased policy by much more than has been the case in new zealand. given the record of growth with low inflation which the us economy has achieved over the last decade, surely this suggests that the reserve bank of new zealand should be following the fed's example, and easing monetary policy more aggressively. certainly, the american central bank has cut its official interest rate by 250 basis points since the beginning of the year. the australian central bank has cut its official interest rate by 125 basis points since the beginning of the year. and to date the new zealand central bank has cut its official interest rate by a rather more modest 75 basis points since the beginning of the year. and forecasts of the parts of the global economy of most relevance to new zealand, compiled in london by an organisation called consensus forecasts, continue to be revised down. back in november, as we prepared our december monetary policy statement, the consensus forecast for the 14 countries of most relevance to us had growth in those countries this year at 3. 5 per cent. three months later, that forecast had been revised down to 2. 9 per cent. now, the forecast is only 2. 3 per cent. surely, it must be obvious to the reserve bank that the world economy is going to continue to get weaker, and monetary policy must be