Latest / Best of Business / Jenee Tibshraeny: NZ Herald Wellington business editor on the IMF's annual report on New Zealand's economy

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Jenee Tibshraeny: NZ Herald Wellington business editor on the IMF's annual report on New Zealand's economy · Best of Business

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  Speaker 1: cry and Bridge Now.
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  Speaker 2: The International Monetary Fund, the IMF is today released its
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  Speaker 2: yearly report on the state of our economy, and it's
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  Speaker 2: not too keen on the government deregulating banks to spur
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  Speaker 2: more competition in the sector. Janay chip Trainee is The
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  Speaker 2: Herald's Willington business editor. She's been breaking looking into this
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  Speaker 2: for us. Jenay, good evening. Hey, Ryan, so why are
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  Speaker 2: they worried about less regulation?
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  Speaker 3: Well, the IMF is basically just cautioning the government. It's saying, hey,
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  Speaker 3: make sure that these rules that the Reserve Bank puts
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  Speaker 3: in place that require banks to have strong balance sheets,
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  Speaker 3: make sure that those rules are actually focused on the
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  Speaker 3: main thing, which is maintaining financial stability. Don't you know.
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  Speaker 3: It's not saying it quite so explicitly, but it's saying
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  Speaker 3: in the IMF was the primary objective of prudential regulation
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  Speaker 3: should be to safeguard financial stability. So it's making this warning.
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  Speaker 3: And the relevance of this is that Nikola Willis is
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  Speaker 3: looking at whether she should override the way the Reserve
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  Speaker 3: Bank regulates banks because she thinks that potentially, if some
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  Speaker 3: of these rules are watered down a bit, banks might
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  Speaker 3: leand more freely. Their interest rates might be a bit lower,
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  Speaker 3: and big and small banks might be able to compete
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  Speaker 3: more freely. So there's definitely a trade off here. On
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  Speaker 3: the one hand, you've got you know, making sure the
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  Speaker 3: banks are super strong, they've got lots of capital. But
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  Speaker 3: you know, on the other hand, it's like, well, are
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  Speaker 3: we overdoing it? The IMF is saying, make sure that
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  Speaker 3: the main goal of the rules is actually to maintain
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  Speaker 3: financial stability.
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  Speaker 2: Yeah, especially with a country like ours, where you know,
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  Speaker 2: we're an earthquake away from it all being over. It's
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  Speaker 2: funny you say they didn't say this explicitly. The IMF
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  Speaker 2: doesn't say anything explicitly this report. It's so hard to read.
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  Speaker 2: It's like you need a telescope, a dictionary in another language.
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  Speaker 3: Yeah, you know, it's like prudential regulation. You know, it's
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  Speaker 3: not that radio friendly.
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  Speaker 2: What else did the IMEF have to say about the economy.
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  Speaker 3: Well, they also said that the Reserve Bank should be
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  Speaker 3: ready to use it has another you know, long wordro
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  Speaker 3: macro prudential tools. That's it should be ready to tighten
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  Speaker 3: those loan to value ratio restrictions and it's debt to
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  Speaker 3: income restrictions. If low interest rates, see the housing market
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  Speaker 3: take off and see banks do lots of risky lending.
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  Speaker 3: So those are those rules that mean you need to
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  Speaker 3: have it that you generally need a twenty percent deposit
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  Speaker 3: if you're an owner occupier, and you need to have
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  Speaker 3: you know enough income relative to the size of the
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  Speaker 3: loan that you want. There are those rules in place,
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  Speaker 3: and it's it's set a warning that actually the Reserve
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  Speaker 3: Bank should be ready to tighten those if necessary.
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  Speaker 2: Interesting, and now I noticed in that IMEF report they said, yeah,
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  Speaker 2: get your ICR back to neutral. In fact, they said
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  Speaker 2: three point two five percent by mid year. They reckon.
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  Speaker 2: But there's an economist warning that because Adrian Or has
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  Speaker 2: left the Reserve Bank that we might see a slightly
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  Speaker 2: higher track because of his departure.
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  Speaker 3: Yes, now this is where it gets interesting with these
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  Speaker 3: bank capital rules. Again, Adrian Or was a fierce defender
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  Speaker 3: of these rules. So they're still being phased in. They'll
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  Speaker 3: be fully phased in by twenty twenty eight. If what
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  Speaker 3: the banks say is correct, then that mean interest rates
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  Speaker 3: will be higher because of these rules. So if banks
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  Speaker 3: need to hold more capital, that costs them, so they
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  Speaker 3: pass that cost onto us. But if Nichola Willis comes
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  Speaker 3: in and overrides the Reserve Bank or appoints a new
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  Speaker 3: governor that is happy to loosen the rules, then that
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  Speaker 3: means interest rates could be a bit lower. So that means,
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  Speaker 3: you know, banks might have charge us slightly less for
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  Speaker 3: our mortgages. If that happens, and this is now taking
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  Speaker 3: us five steps down the line. If that happens, interest
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  Speaker 3: rates might end up being a bit lower than what
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  Speaker 3: the Reserve Bank deems design to keep inflation and check.
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  Speaker 3: So then it might mean that it might need to
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  Speaker 3: lift the o CR a little bit more than might
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  Speaker 3: otherwise be the case. So I know, I'm taking us
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  Speaker 3: like a million steps down the road here, But but
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  Speaker 3: this being z economists, Stephen Topliss has said, well, if
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  Speaker 3: the if the capital rules are watered down, that might
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  Speaker 3: mean that o CR might need to be a little
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  Speaker 3: bit higher to prevent the mortgage rates that that banks
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  Speaker 3: charge from from falling too low. You know, if they
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  Speaker 3: fall too low, that can stimulate the economy and that
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  Speaker 3: could be inflationary. So that could mean that the o
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  Speaker 3: CR needs to go up a bit. So I suppose
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  Speaker 3: the big takeaway here, and it's all very complicated, but
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  Speaker 3: these capital rules are worth are worth a lot. You
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  Speaker 3: know that these the way that banks are regulated, you
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  Speaker 3: know that has a really big impact through the economy.
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  Speaker 3: And I think the IMF is also warning we need
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  Speaker 3: we can't tinkle with these things willingly. You know that
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  Speaker 3: there needs to be a pretty you know, a good
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  Speaker 3: effort to make sure they are well calibrated because the
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  Speaker 3: flow and effects are.
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  Speaker 2: Extensive, massive, and it's basically a battle between stability and
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  Speaker 2: I guess cost effectiveness too, isn't it. Janet, thank you
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  Speaker 2: very much for that. As always, genetic training with us
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  Speaker 2: from The Herald. She's the Mornington Business Editor.
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