It contains a wide mandate
The Reserve Bank of New Zealand – Te Pūtea Matua (RBNZ) has released its briefing for the incoming minister of finance, Nicola Willis (pictured).
In the briefing, the RBNZ stated that it had a wide mandate spanning monetary policy, financial stability, cash operations, and financial markets infrastructure. It noted operating with significant inflationary pressures along with shortages in labour, as well as the ongoing geopolitical and climate disruption.
The RBNZ also tackled the current risks in the financial markets, such as further inflationary shocks, global economic slowdown, and volatility.
“These risks can put upward pressure on near-term inflation and mean higher for longer interest rates globally, higher unemployment and strains on debt servicing and asset prices,” it stated.
The RBNZ explained that some insurers were facing profitability challenges, especially general insurers in areas where recent weather events had caused an increase in reinsurance and operational costs.
“This, combined with more granular use of risk-based pricing, may result in increased costs and reduced access to insurance for some customers, and a rise in underinsurance,” it said.
While the RBNZ offered assurances that it was capitalized sufficiently and is prepared in case many of the eventual profitability challenges occurred, it noted that extreme circumstances may still possibly cause repercussions to the Crown balance sheet.
“A great deal of work is required to understand the implications of the recent domestic and global disruption, and associated policy responses, for macro-economic stability in New Zealand. Monetary and fiscal policy coordination is critical for our small, open economy,” the RBNZ said.
“It is vital that we continue to work closely together with the Treasury – Te Tai Ōhanga to support the country’s recovery following the COVID-19 pandemic,” it added.
