Greek woes may affect NZ credit access - Bollard

Reserve Bank Governor Alan Bollard. Photo / Mark Mitchell

Reserve Bank Governor Alan Bollard says Greece's sovereign debt woes could end up affecting New Zealand's access to credit and slowing down the country's economic growth.

Bollard, who last week travelled to the United States with Finance Minister Bill English to attend World Bank and IMF meetings, told Radio New Zealand that the mood in Washington was "thoroughly depressive" as both America and Europe grappled with sovereign debt and fiscal problems.

"I think there were two different sorts of depression. One was American depressive talk - and they don't usually talk that way - and the other was European, and some of that is very complicated," Bollard said.

"And of course you have got the financial markets looking at this all the time, and they have been very volatile - reacting up and down, day by day," he said.

Bollard said the Reserve Bank was "tracking through" what Europe's debt troubles might mean for New Zealand.

One such "track" was: "Could we see the Europeans make such a mess of trying to sort out their financial contagion that the markets remain very, very fragile and remain reluctant to offer medium term funding for even good countries and good banks like Australia's and New Zealand's.

He said it already become difficult for Australasian banks to get medium term funding in European markets.

"I don't think that's a problem at the minute, because they are very well-funded, but if it were that to continue through to next year, then it could become a problem at some stage, and that would certainly slow down lending and slow down growth in New Zealand," he said.

"The other channel that we are looking at and we are concerned about is that if European growth really slowed down, as it looks like it is doing, then ultimately that could really affect China and other east Asian countries.

"They (China and east Asia) have been a bit de-coupled from all of this so far, but as we found out in late 2008, no one is really decoupled," Bollard said.

Bollard said China's exports fell away sharply in the wake of the 2008 financial crisis.

"We would not want to see that happen again. If it did it, it would hurt commodity prices, it would hurt Australian growth and it would hurt New Zealand growth."

Elsewhere in the interview, Bollard reiterated his belief that the New Zealand dollar, which as fallen sharply from its post float high of US88.43c on August 1, remained overvalued. The currency traded this morning at US77.6c.

Bollard also said it was possible that the United States could go back into recession, but said that he did not think it would.

He added that Greece, while relatively small, was "the thin edge of the wedge" compared with the larger economies of Italy and Spain, which are also highly indebted.