New Zealand's economy, financial system "sound": report

APD NEWS

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New Zealand's economy and financial system remain on a sound footing despite continuing challenges in the global environment, according to the Reserve Bank's Annual Report 2016-17 released on Friday.

The 2016-17 financial year saw a pickup in economic activity in most major economies, although inflation and wage pressures remained subdued, the report said, adding that supported by improving domestic economic conditions, the New Zealand banking system remains "sound and well capitalized."

"As a small, open economy, developments beyond our shores have a large influence on New Zealand's economic outcomes," former Reserve Bank Governor Graeme Wheeler said in the report. Wheeler finished his term as governor on Sept. 26.

Acting Governor Grant Spencer said that in the last financial year, the bank undertook comprehensive research into the drivers of low inflation and in particular the formation of inflation expectations.

"We have also focused a lot of policy work on strengthening the financial system against potential shocks," Spencer said.

Rapid house price inflation in recent years led to increased financial stability risks, he said, adding that in response, the bank introduced loan-to-value restrictions on house lending, including tighter Loan to Value ratio (LVR) restrictions on property investors from October 2016, which have improved the resilience of the banking system.

"We have revised the outsourcing policy for larger banks, initiated improvements to banks' quarterly disclosures, and undertaken stress testing," Spencer said.

During the year, the International Monetary Fund undertook a comprehensive review of New Zealand's financial sector regulatory regime through its Financial Sector Assessment Program, which recognized a number of positive features of New Zealand's institutional framework and the bank's policy approach, he said.

The bank "retained high audit ratings and achieved its operational objectives," Spencer said, adding that a dividend of 145 million NZ dollars (104.7 million U.S. dollars) has been paid to the government.

(ASIA PACIFIC DAILY)