Live blog from RBNZ Governor Alan Bollard before parliamentary committee (Updated)

Reserve Bank Governor Alan Bollard is appearing before Parliament's Finance and Expenditure Select Committee after he delivered the December Quarter Monetary Policy Statement (MPS), in which he kept the Official Cash Rate at 2.5% and said he may hike the rate from the middle of 2010. This was slightly earlier than previously signalled and helped boost the New Zealand dollar over 72 US cents as market players bet he would increase the OCR from March. "The market have themselves reduced the need to move faster because of the higher exchange rate and the bigger gap between the OCR and mortgage rates," Bollard said. He pointed out the rise in the currency since the morning statement. "I imagine that's a short term feature, but we'll see over the next few weeks," he said.

Meanwhile, RBNZ Head of Financial Markets Simon Tyler said the proportion of mortgages that were on variable rates had doubled to 20% from 10% over the last year and the remaining fixed mortgages were at shorter terms. The average mortgage duration has fallen to 12 months from 20 months over the last two years. "The OCR will have far more bite than it would have in 2007 and 2006 when you had a far longer tenor for the longer term mortgages," he said. Alan Bollard was asked by Labour Finance Spokesman David Cunliffe about alternative monetary policy tools, referring in particular to the RBNZ's recent use of its core funding ratio to force banks' to borrow more locally and longer term than from the cheap 'hot' money markets. Cunliffe also referred to the potential for new capital adequacy rules under reformed international bank capital rules to slow bank lending to housing. Bollard said capital adequacy rules would be less useful than the core funding ratio as an alternative monetary policy tool, although he noted further proposals from the G20's moves to bring in new capital rules were due shortly through the Basle II process. International moves towards new liquidity policies were likely to head in the same direction as the Reserve Bank's own moves towards a core funding ratio. "There's increasing interest as to whether it (the ratio) can fill the gap between individual institutional stability and stability in the wider macroeconomy," he said. The international community may also look at contingent capital requirements and perhaps dynamic provisioning. "We'd be expecting to look at these and see which ones are relevant," he said. The meeting has now finished.