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Reserve Bank says no silver bullet to stop asset booms


Reserve Bank of New Zealand (RBNZ) governor Alan Bollard today gave a comprehensive review of tools to deal with future asset price booms and concluded that there is no silver bullet.

NZPA
Fri, 25 Mar 2011

Reserve Bank of New Zealand (RBNZ) governor Alan Bollard today gave a comprehensive review of tools to deal with future asset price booms and concluded that there is no silver bullet.

In a speech to the Basel III Conference in Sydney, Dr Bollard said policymakers were increasingly focusing on the resilience of the financial system as a whole, and the capacity for pro-cyclical lending behaviour to amplify the macro-economic cycle in a destabilising manner.

"There is currently considerable interest in macro-prudential instruments -- policy tools that might be used to promote a more stable and resilient financial system and help smooth the credit cycle, reducing the risk of boom-and-bust cycles," he said.

Like other countries, New Zealand had already moved on liquidity policy to shift the banking system on to a more stable funding base but there had not been a need to use macro-prudential instruments during the weak credit cycle, he said.

"However, we do need to keep preparing for how we might deal with credit and asset price booms when they recur in the future.

"Our work so far on macro-prudential instruments suggests that we should keep our expectations modest, but we have identified several tools that we would contemplate using in the right circumstances."

The world had little practical experience of some of the macro-prudential tools currently under consideration and understanding of them would evolve.

Dr Bollard said the RBNZ had undertaken a review of macro-prudential tools and identified several that it would contemplate using in appropriate circumstances, while keeping expectations realistic. These include credit-based measures, accounting tools, liquidity instruments and capital buffers.

"While none would be a silver bullet in terms of moderating the credit cycle, we believe some could make a useful contribution," he said.

NZPA
Fri, 25 Mar 2011
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Reserve Bank says no silver bullet to stop asset booms
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