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The Reserve Bank yesterday added another two new measures to ensure the banking sector is not starved of liquidity should the credit crisis deepen further.
It announced a new term auction facility which will operate in a similar way to its open market operation and will be used to inject cash into the system using approved eligible collateral.
The auction will be held at 9.30am each Wednesday, instead of the daily open market operation, and will offer up to $2 billion for terms of three, six and 12 months.
The other new facility is a weekly Reserve Bank Bill tender at 2pm, also on Wednesdays. The tenders will be held as required and will be used to withdraw cash so it is kept at appropriate levels. The Reserve Bank Bill is an existing instrument but has not been on issue since 1999.
The Reserve Bank Bill tenders will typically be of up to $2 billion worth of bills that mature in three months.
The bank may offer six- or 12-month maturities. The measures are the latest the RBNZ has introduced to ensure sufficient liquidity in the banking system. One of the more notable has been its undertaking to accept high-quality residential backed mortgage securities as collateral for loans to banks.
BNZ economist Craig Ebert said all of the liquidity measures were intended to help the banking system cope with what is clearly some turbulence "but stepping back, the New Zealand and Australian banking systems are well placed to cope, their dependence on foreign funding notwithstanding".
"In particular, their balance sheets are in very good nick."
Ebert said the release of the RBNZ's twice-yearly financial stability report next week would likely remind people that "while things are tough around the edges, any other developed country would give their eye teeth to have the sorts of statistics that are coming out of our financial sector, even now".
