Finance Minister Grant Robertson took a proposal to boost the Reserve Bank of New Zealand’s capital by NZ$1.3bil to his cabinet colleagues last month, according to documents released by the Treasury Department. — Reuters
WELLINGTON: New Zealand’s central bank is getting more capital from the government to allow it to meet balance sheet risks and enable it to deploy tools to ensure financial stability.
Finance Minister Grant Robertson took a proposal to boost the Reserve Bank of New Zealand’s (RBNZ) capital by NZ$1.3bil to his cabinet colleagues last month, according to documents released by the Treasury Department yesterday in Wellington.
He also intended to provide the RBNZ with an indemnity to cover losses of as much as NZ$5bil.
The action follows restructuring of the governance of the RBNZ that requires it to prudently manage its liabilities.
Earlier this year, the government agreed to a NZ$500 million capital increase and an indemnity to allow it to build foreign reserves and to be able to intervene in currency markets.
Robertson said pursuit of financial stability may require the RBNZ to carry more risk on its balance sheet, and the central bank needs more capital to offset that risk.
“These arrangements will ensure the bank has sufficient financial resources to intervene for financial stability purposes and to undertake conventional monetary policy, including some support to establish a negative interest rate if required,” he said in the cabinet paper. “The financial backing also provides support for some risks already on the Reserve Bank balance sheet.”
He said the RBNZ’s quantitative easing, or Large Scale Asset Purchase programme, has incurred past and expected future losses of NZ$10.5bil which is covered by an existing indemnity. That indemnity will be terminated, although the government liability remains. — Bloomberg
