New rules to curb credit booms will become a tool for controlling interest rates and the exchange rate along with existing monetary policy tools, the assistant governor of the Reserve Bank of New Zealand, Grant Spencer, says.
Spencer, a front-runner to replace retiring governor, Alan Bollard this August, used a speech to a remuneration forum in Auckland to outline how macro-prudential requirements introduced after the global financial crisis were likely to become another tool in the armoury for inflation-fighting.
His comments come as both the Labour and Green parties seek to pressure the government over the high New Zealand dollar with claims a greater range of measures and more flexible benchmarks are required for the conduct of monetary policy.
Spencer focused especially on the so-called counter-cyclical credit buffer, "an additional capital requirement that local supervisors may apply when credit is booming, and remove when the cycle is turning down."
"Such policies will tend to have the effect of either dampening the credit cycle or dampening international capital flows and hence exchange rate pressures," he said. "For those reasons, macro-prudential policies might be expected to play a useful secondary role in helping to stabilise the macro-economy."