KEY POINTS:
A rally call went up from New Zealand's central bank today not to be defeatist about the major international economic crisis we find ourselves in.
Reserve Bank governor Alan Bollard yesterday cut the official cash rate (OCR) to a record low of 3.5 per cent to stimulate the economy. The OCR has been slashed from 8.25 per cent since the middle of last year.
There was still room to cut the OCR more, Bollard said today in a speech to the Canterbury Employers' Chamber of Commerce.
He again stressed that the New Zealand economy was well placed with a well-capitalised banking system and a central bank prepared to take further remedial interventions.
"Lest there be any doubt, the tool box is by no means empty," he said.
Banks should continue to lend on sound business propositions, he said in a long speech - 17 pages of single-spaced text.
"New Zealand will be better prepared for economic recovery if households, firms and banks do not pull down the shutters," Bollard said after traversing the causes and responses to the crisis.
He acknowledged the economy was in the middle of a major international shock and that households, firms and banks would naturally be very cautious.
"However, we should also be watchful for the opportunities, and mindful of the risks of defeatism."
Past recoveries occurred suddenly and strongly, and New Zealand needed to remain well-positioned for such a recovery, said Bollard.
The international credit crunch had exposed vulnerabilities associated with household and external debt, and how this debt was funded.
Prudential policy would continue to put a priority on ensuring banks adequately managed risks associated with rolling over their debt funding.
The central bank would finalise a new policy on the management of liquidity risk around March.
The policy would reinforce incentives for banks to lengthen the maturity of their funding.
"We will be further advancing our work programme with our Australian counterparts on improving regulation and supervision of banks with trans-Tasman operations," he said.
New Zealand's biggest banks are Australian owned.
"Finally the Reserve Bank is not the only agency with a role to play in stabilising the economy," he said.
He spoke of the need for targeted regulation and said New Zealand's fiscal position is stronger than in other countries.
"It is by no means clear how the international financial system will be organised in the future. The institutions and tools of financial regulation and supervision may well undergo far-reaching change," he said.
- NZPA
Read the speech here
