In what appears to be an accelerating global trend, New Zealand Announces New Liquidity Measures.

The Reserve Bank today announced that it is adopting measures to ensure there is sufficient liquidity in the banking system in the event of further international financial market turbulence.

Deputy Governor Grant Spencer said the measures mirror similar actions by other central banks in the wake of the global financial market turmoil.

“We are confident the banking system can cope with current conditions, but we are taking steps to ensure it can handle any unforeseen pressure in the current uncertain environment,” Mr Spencer said.

The new liquidity measures, most of which will take effect from 3 June, include the following:

  • Extension of the range of securities eligible for acceptance in the Reserve Bank’s domestic liquidity operations to include: NZ-registered NZ dollar AAA rated securities, including Residential Mortgage-backed securities, and AA rated NZ government sector debt – including Government agencies, SOEs and Local Authorities.
  • The discount margin applied in the Bank’s Overnight Reverse Repo Facility will be 50 basis points for all eligible securities.
  • A graduated ‘haircut’ regime will replace the existing limit structure for all securities eligible for domestic liquidity operations.
  • Extension of Overnight Reverse Repo Facility from 1 day to a maximum of 30 days.

These measures will further enhance liquidity in the banking system following initial measures introduced in September last year. They are the result of a work programme over the past two months to help pre-position for unexpected liquidity pressures.

Additional details can be found by clicking on Technical Details for new Liquidity Measures.

Global panic is spreading.

Mike “Mish” Shedlock
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