What Can We Learn From New Zealand Loan Policies?

Loan policy plays an important role in the economy of any country. The article will focus on the central bank of the country that each of Tolkien’s fans would like to visit, an adaptation of books about the adventures of the hobbits of which is known throughout the world. That is the Reserve Bank of New Zealand, which is the principal supervisor of loan policies in the country.

On April 1, 1934, the Act on the establishment of the Reserve Bank of New Zealand was adopted, and on August 1, 1934, the bank entered into operation and launched the issuance of banknotes. In 1936, the bank was nationalized. Long before the creation of the RBNZ, for a long time on the territory of New Zealand, not only British but also foreign coins were in circulation (Portuguese, Spanish, Indian, Dutch, Danish.)

Reserve Bank of New Zealand Structure

RBNZ management consists of the chairman of the bank (Graeme Wheeler) and the Board of Directors. The Board of Directors organizes regular meetings during which the performance of the chairman and the bank as a whole is assessed. A distinctive feature of the RBNZ management structure from other central banks of the leading countries of the world is that the chairman makes the final decision on the monetary policy of the Central Bank, and the Board of Directors provides advisory assistance in making such decisions. Also, the Reserve Bank of New Zealand is wholly owned by the state, which distinguishes it from other reserve banks, such as the US Federal Reserve.

It should be noted that in the New Zealand Forex trading brokers list almost every broker has some type of connection with the bank and loan policies have a strong impact on the brokers. 

RBNZ functions

Like most central banks, the main task of the RBNZ is to maintain financial stability in the country through effective monetary policy. The Reserve Bank of New Zealand is responsible for issuing and withdrawing New Zealand currency from circulation. The RBNZ also provides a high level of control over the private banking sector of New Zealand. According to the requirements of the Central Bank, each of the private banks operating in the country provides quarterly reports and detailed data on its activities and financial condition.

Monetary and loan policy of RBNZ

The primary tool for regulating the monetary policy of the Reserve Bank of New Zealand is the change in the basic interest rate, which is currently at 1.75%, which is the lowest value for the RBNZ. In turn, this level of the RBNZ interest rate is higher than that of the RBA, Fed, ECB, Bank of England, the Central Bank of Switzerland, and the Central Bank of Japan. This makes New Zealand attractive for foreign investment.

Naturally, attracting investment in the country is a positive moment, but do not forget that their influx supports the national currency of New Zealand, which is unprofitable for a country-oriented to export. It would be logical to think that in this situation, the Reserve Bank of New Zealand could lower the interest rate by weakening the national currency in the international arena. Still, for some reason, the RBNZ is not taking this step.

The fact is that the New Zealand real estate market is proliferating. According to April data, housing prices in New Zealand have risen by 10% since the beginning of the year, and in some regions, prices rose by 27%. Due to the high inflation rate in the real estate sector, the main task of the RBNZ is to prevent overheating of this sector, which can lead to a sharp decrease and negatively affect the economy as a whole. Given the above facts, the Reserve Bank of New Zealand will keep the interest rate unchanged for a long time and, most likely, the next change in the discount rate will be in the direction of increase, not decrease.