RBNZ reassures again about banking system soundness

The Reserve Bank released a statement late on Tuesday reassuring the public of the soundness of New Zealand's banking system, despite the "disappointing" decision by the US Congress to reject the bailout package, which had left "parts of the financial markets in limbo." The bank also appeared to reject the idea of an emergency interest rate cut, pointing instead to the next rates decision due on October 23 and saying any medium term effects on the economy would be dealt with through the normal monetary policy process. Here is the full Reserve Bank statement below.

The Reserve Bank today reiterated its previous comments that the New Zealand banking system remains sound. Its comments follow financial market turbulence following the failure of the US Troubled Assets Relief Program to pass through Congress. Reserve Bank Governor Alan Bollard said the liquidity measures taken to date by the Bank are handling the pressures from global markets. "We are monitoring current events in the financial markets very closely," Dr Bollard said. "The failure of the US Congress to agree the bail-out package was a disappointment, and it leaves parts of the financial markets in limbo until the matter is resolved. "In the meantime, the very short-term effects on the New Zealand market are not major. However, there could well be medium-term effects on the economy "“ but we will continue to deal with them through our normal monetary policy process. The next OCR decision is due on October 23. "The banking system is sound in New Zealand, and we do not expect this to alter. Over the past year, we have announced a number of measures that will make it easier for financial market participants to maintain liquidity during a period of financial market disruption. While we believe these are sufficient, we are keeping liquidity support arrangements under review and will respond as appropriate. "In the meantime we are staying in close touch with the banks, and also with the Government."