RBNZ reviewing emergency liquidity support

The Reserve Bank of New Zealand signalled it may consider re-introducing or delaying liquidity support measures amid the volatility in global markets.

In its Statement of Intent for the period 2010-2013, published yesterday, the RBNZ noted that sovereign debt concerns in Europe have more recently impacted the cost and availability of funding and as an externally indebted country, New Zealand remains exposed to any deterioration in global debt markets.

The RBNZ, therefore, indicated it will be ready to support markets should the need arise. "While we have unwound most of the emergency liquidity support provided to the financial system during the financial crisis, our facilities remain under review given the current volatility in global markets," Governor Alan Bollard said.

At the same time, the RBNZ affirmed it will begin unwinding special financial system support and monetary policy stimulus "as conditions permit."

It seems that given the volatility in global financial markets, the RBNZ is keen to provide a line of assurance to markets that it will act if needed. Such a step isn't out of line with developments in other countries. For example, in the United States there is talk of the need for more monetary stimulus.

In Europe the expiry of the €442 billion of 12-month refinancing operations of the European Central Bank has raised fears of a squeeze in liquidity.

Those fears, however, waned last night after the ECB's tender for three-month liquidity attracted bids for only €132 billion, far less than what markets had estimated and indicating that the earlier concerns on liquidity were probably exaggerated.