Reserve Bank announces new liquidity measures

The Reserve Bank has announced that it is adopting measures to ensure there is sufficient liquidity in the banking system in the event of further international financial market turbulence.

These measures will further enhance liquidity in the banking system following initial measures introduced in September last year. They are the result of a work programme over the past two months to help pre-position for unexpected liquidity pressures.

The new liquidity measures, most of which will take effect from 3 June, include the following:

• Extension of the range of securities eligible for acceptance in the Reserve Bank's domestic liquidity operations to include: NZ-registered NZ dollar AAA rated securities, including Residential Mortgage-backed securities, and AA rated NZ government sector debt – including Government agencies, SOEs and Local Authorities.
• The discount margin applied in the Bank's Overnight Reverse Repo Facility will be 50 basis points for all eligible securities.
• A graduated 'haircut' regime will replace the existing limit structure for all securities eligible for domestic liquidity operations.
• Extension of Overnight Reverse Repo Facility from 1 day to a maximum of 30 days.

For further detail of the measures go to www.rbnz.govt.nz. The bank intends to consult with market participants before finalising the timing and detail of the measures. The changes are seen as temporary, to be kept in place while global markets remain unsettled. The bank's liquidity arrangements will be further reviewed in 12 months' time.

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