New Zealand’s central bank will use new banking rules to help contain interest rate and currency pressures, the Deputy Governor said today. The so-called macro-prudential policy “will have an important influence on monetary policy, in a similar way to fiscal policy,� Grant Spencer said in e-mailed notes of a speech in Auckland today. The Reserve Bank of New Zealand wants to strengthen the nation’s financial system after learning prudential lessons from the global financial crisis, Spencer said. As well as tightening liquidity requirements, the new rules seek to combat credit booms and protect the economy from bank failures. “Such policies will also tend to have the effect of either dampening the credit cycle or dampening international capital flows and hence exchange rate pressures,� Spencer said. The central bank is to increase the core funding ratio, which determines how much of lending must be funded by retail deposits and long-term borrowing, to 75 percent from Jan. 1, 2013, Spencer said. It originally planned to raise the ratio from 70 percent in June, deferring the increase last year because of global turmoil. The macro-prudential rules, which use balance sheet ratios and other regulatory requirements to influence bank lending, will complement the central bank’s use of interest rates to control inflation, he said. They will never be as influential as monetary policy, he said. The bank is developing an outline of the rules to be agreed by Finance Minister Bill English as a basis for future policy decisions, according to Spencer. To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Source