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Background

Are we there yet? Heading for a population of 5 million | Scoop News

At that time the IMF were forecasting higher global growth and the New Zealand economy was growing rapidly, with the latter due to the terms of trade being at a year high, strong construction activity, rising net immigration and highly accommodative monetary policy. We forecast a positive output gap and rising inflationary pressures. By late , the global economy was not strengthening as anticipated, oil prices had almost halved since June and whole milk powder prices were down by 40 percent. Faced with the prospect of a weaker economy and lower inflation pressures, the Bank moved to a neutral bias and then began the first of seven OCR cuts in June Central banks do not expect to be able to accurately forecast commodity prices.

What matters is that central banks make sensible decisions on the basis of the information available, reflect carefully on the views held by financial markets and key institutions, remain open-minded, carefully assess new information as it becomes available, and change their forecasts and policy settings when it considers it appropriate. We are satisfied that the Bank met these tests. Experience in several countries indicates that monetary policy is generally not a good vehicle for leaning against inflated asset prices.

In these situations interest rates would have to increase very substantially in order to dampen asset prices and the rise in interest rates could do substantial damage to the economy by depressing spending, reducing risk taking, and undermining the competitiveness of the tradables sector. Prudential and macro-prudential policies can play a valuable role in reducing the systemic risks to the banking system associated with inflated asset markets.


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We are likely to see macro-prudential instruments become even more important and widely deployed by countries in years to come. On the prudential side, over the last five years we tightened prudential standards, adjusted inefficient or poorly targeted regulation and took steps to lower compliance costs. We completed the licensing of nearly insurers. A year-long review of bank regulation, with a particular focus on policy development and regulatory processes, was undertaken with extensive consultation with the banking sector. We are currently reviewing the quality of bank capital instruments and assessing whether banks are adequately capitalised, and reviewing the effectiveness of the Insurance Prudential Supervision Act, It concluded that the banking system is well placed to withstand large but plausible shocks, as judged by a range of stress tests.

However, the IMF recommended, among other things, strengthening the macro-prudential regime to include a debt-to-income instrument, and addressing weaknesses in the approach to financial market infrastructures regulation and bank crisis resolution. A highlight of the last five years was the delivery of a new series of bank notes with enhanced security features that were well-received by the public and international bank note producers.

A disappointing element was the failure of negotiations to sell New Zealand Clear. Considerable emphasis has been placed on increasing the management strength across the Bank, benchmarking performance, testing back-up systems with the Auckland office and managing enterprise risk. This emphasis is essential as the Bank has broad responsibilities, conducted with only staff, and needs to manage multiple business and policy-related risks. Every five year window brings its own set of challenges.

The nature of the concern

Despite these challenges, the New Zealand economy has generally performed well during this time. Since , GDP growth has averaged 2. Both exceed the trend rate of growth. Long term inflation expectations remain well anchored at the target mid-point of 2 percent. We have also had a stable financial system. Nationwide annual house price inflation has declined to 1 percent due to LVR restrictions, the tightening in bank lending, the rise in mortgage rates and increasing concerns about housing affordability. LVR restrictions have been effective in reducing financial stability risks as house prices became increasingly stretched.

In the absence of major unanticipated shocks, prospects look promising for continued robust economic growth in New Zealand over the next two years. The greatest risk we face at this stage relates to the inflated global asset prices and the continuing build up in global debt. If growth in the global economy slows, we have some scope to buffer our economy. Our official cash rate is 1. I wish to thank the Board of the Bank for their intensive scrutiny, support and advice over the past five years.

The Board plays a critical role in monitoring the performance of the Bank and the Governor. I have been fortunate to work closely with three excellent and insightful chairs in Dr Grimes, Dr Carr and Dr Quigley. Above all, I wish to thank my colleagues in the Bank. It has been a great pleasure to work with my fellow governors on the Governing Committee and with the Senior Management Group. The fact that the Bank continues to maintain a strong international reputation is due to the high calibre, dedication and commitment of colleagues throughout the institution.

Protectionist measures and trade disputes in were at their highest level since the GFC. This is equivalent to a 6 percent increase in the working-age population. The participation rate over the past 25 years has averaged 67 percent. They have averaged around USD per metric tonne in The insurance payout, expected to be around NZD 36 to 40 billion, is the 5th largest global insurance payout. The output gap reflects the difference between the level of output in the economy and potential output and, as such, indicates the degree of excess capacity or capacity constraints in the economy and the implications for inflationary pressures.

We regard the neutral interest rate as the policy rate consistent with the economy growing at its potential in the medium term and having inflation expectations matching the price stability objective. The recession was related to the collapse of the high-tech bubble, and the recession was due to the range of financial market and regulator factors that led to the GFC.

Exchange and interest rates Lending and monetary statistics Reserve Bank Registered Banks Insurance financial statistics Non banks and other financial institutions Households New Zealand debt securities Economic indicators International position.

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Three had their origins in sharp spikes in oil prices, and the last two resulted from asset price corrections that affected financial market stability. The likelihood of central banks having to lean hard against a rapid burst in global inflation looks to be low. Structural factors are playing a dominant role in the low inflation environment. These factors include: ongoing declines in the cost of information technology and capital goods; increasing global competition in the services sector e.

Wage moderation seems to be linked to several factors, such as the diminished bargaining power of labour, technological change, global outsourcing, demographics, and changes in labour market composition. The greater risk lies in a large correction in asset prices that leaves investors with little or no equity in their investments at a time when the broader economy is under pressure.

Two aspects are of concern in this regard:. Most of the growth in debt has occurred in the emerging markets especially on the corporate side which has increased from 55 percent to 95 percent of EE GDP and household sector from 20 percent to 35 percent. Most of the growth in advanced economy debt occurred in the general government sector - which rose from 70 percent to percent of AE GDP.

On this front, financial markets remain confident that central banks will continue to maintain highly stimulatory monetary policy settings for the foreseeable future. Measures of financial market volatility remain close to historic lows. However, investors are acutely conscious that the major central banks are large holders of long- dated Government securities, and some have corporate debt and equities in their portfolios , and are highly attuned to any hint of a possible tightening in policy rates or winding back in the scale of quantitative easing.

If growth in the global economy slows because of debt-related or other issues, our economy will be affected. However, there is scope to help buffer against such shocks.

Are we there yet? Heading for a population of 5 million

We have greater room for monetary policy manoeuvre than central banks in many advanced economies. Our Official Cash Rate is 1. Similarly, with budget surpluses and low net Government debt relative to GDP, the Government has flexibility on the fiscal policy side. Flexible inflation targeting was introduced by the RBNZ in and has been adopted by most central banks in the advanced economies and several emerging market economies.

We believe that it is still the best monetary policy framework for New Zealand. It has helped to deliver low inflation while enabling the Bank to take account of domestic and external developments in framing its monetary policy responses. No country has abandoned flexible inflation targeting, nor has any country adopted nominal income targeting or price level targeting that are sometimes suggested as alternatives.

Background

Central banks make monetary policy decisions by drawing on the data available, research, models, forecasts and judgement. At a technical level it involves estimating potential output, output gaps, and the neutral interest rate, and assessing the transmission mechanisms through which interest rate changes affect output growth and inflation, and the time lags involved. Structural changes in the economy can have important effects on factors that are central to monetary policy decision making. We've seen the relationship between the output gap and inflation change with Philips curves flattening across the advanced economies, even in countries with rapid employment growth and low unemployment rates.

The fact that the Reserve Bank has much less control over tradables inflation did not matter as much when the annual percentage change in import prices in world terms was 2. It's important that the PTA also recognise that several factors can cause inflation to move outside the target range and require the Bank to provide analysis and explanations in the Monetary Policy Statement when this occurs. Specifying a single inflation rate that the central bank should seek to achieve at all times should be avoided - it suggests a spurious accuracy that central banks are unable to deliver.

A reference to the mid-point of the target range however, is appropriate - our research indicates this was a useful factor in reducing inflation expectations. Some offshore commentators have suggested that central banks should raise their inflation targets, perhaps to around 4 percent, in order to move policy rates away from the effective lower bound and give central banks more policy flexibility to respond to any marked slowdown in activity. It is not clear that central banks could readily increase inflation to these levels and attempting to do so would further stimulate asset markets, at least in the short run.

Raising an inflation target when productivity growth is weak makes little economic sense. Some have suggested that the inflation goal should be specified in terms of core inflation rather than headline CPI inflation. A CPI benchmark has many benefits - it's easier to communicate because it more closely resonates with people's experience of living costs, and headline CPI inflation affects real rates of return and real wage outcomes that in turn influence household labour supply and spending decisions.

Monetary policy decisions involve balancing various risks facing the economy, while recognising that inflation outcomes and policy choices are often shaped by decisions that lie beyond the influence of the central bank. Inevitably, central bank forecasts and assumptions require modification as new information becomes available. For example, the Bank raised the OCR four times in the first half of At that time the IMF were forecasting higher global growth and the New Zealand economy was growing rapidly, with the latter due to the terms of trade being at a year high, strong construction activity, rising net immigration and highly accommodative monetary policy.

We forecast a positive output gap and rising inflationary pressures. By late , the global economy was not strengthening as anticipated, oil prices had almost halved since June and whole milk powder prices were down by 40 percent. Faced with the prospect of a weaker economy and lower inflation pressures, the Bank moved to a neutral bias and then began the first of seven OCR cuts in June Central banks do not expect to be able to accurately forecast commodity prices.

What matters is that central banks make sensible decisions on the basis of the information available, reflect carefully on the views held by financial markets and key institutions, remain open-minded, carefully assess new information as it becomes available, and change their forecasts and policy settings when it considers it appropriate. We are satisfied that the Bank met these tests. Experience in several countries indicates that monetary policy is generally not a good vehicle for leaning against inflated asset prices. In these situations interest rates would have to increase very substantially in order to dampen asset prices and the rise in interest rates could do substantial damage to the economy by depressing spending, reducing risk taking, and undermining the competitiveness of the tradables sector.

Prudential and macro-prudential policies can play a valuable role in reducing the systemic risks to the banking system associated with inflated asset markets. We are likely to see macro-prudential instruments become even more important and widely deployed by countries in years to come.

On the prudential side, over the last five years we tightened prudential standards, adjusted inefficient or poorly targeted regulation and took steps to lower compliance costs. We completed the licensing of nearly insurers. A year-long review of bank regulation, with a particular focus on policy development and regulatory processes, was undertaken with extensive consultation with the banking sector. We clarified and tightened the policy on outsourcing of banks' key functions and systems, and obtained Government approval for the regulation of key financial market infrastructures.

We are currently reviewing the quality of bank capital instruments and assessing whether banks are adequately capitalised, and reviewing the effectiveness of the Insurance Prudential Supervision Act, The IMF's Financial Sector Assessment Programme FSAP conducted last year identified the types of banking sector risks high exposure to housing and inflated house prices, heavy reliance on external funding, exposure to commodity price fluctuations that are regularly discussed in our Financial Stability Reports.

Reflections on the stewardship of the Reserve Bank

It concluded that the banking system is well placed to withstand large but plausible shocks, as judged by a range of stress tests. However, the IMF recommended, among other things, strengthening the macro-prudential regime to include a debt-to-income instrument, and addressing weaknesses in the approach to financial market infrastructures regulation and bank crisis resolution.


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  • There were no particular surprises in the IMF's recommendations, although they did comment that the Bank is not adequately resourced to support its existing low-intensity approach to banking regulation and supervision. We are reviewing the IMF's recommendations. A highlight of the last five years was the delivery of a new series of bank notes with enhanced security features that were well-received by the public and international bank note producers. A disappointing element was the failure of negotiations to sell New Zealand Clear. Considerable emphasis has been placed on increasing the management strength across the Bank, benchmarking performance, testing back-up systems with the Auckland office and managing enterprise risk.

    This emphasis is essential as the Bank has broad responsibilities, conducted with only staff, and needs to manage multiple business and policy-related risks. Every five year window brings its own set of challenges. On the international front we've seen increasing use of unconventional monetary policies, sluggish international trade, sharp swings in commodity prices, a continued rapid build-up in global debt, and unexpected political developments in Europe, the UK and the US. Despite these challenges, the New Zealand economy has generally performed well during this time.

    The estimated resident population is always based on the previous census, with allowances for people who usually live in New Zealand residents who were missed or counted more than once on census night or were temporarily overseas. The figures are also updated each quarter for births, deaths, and net migration.

    The estimates have proven to be accurate in the past. For example, following the Census, we revised national population estimates at 30 June down by 29,, just 0. After the and Censuses, national population estimates were revised up by 12, 0.


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    • Planned revisions: We have a scheduled revision of the population estimates and population clock later in to incorporate new migration estimates and Census data. We will let New Zealanders know more as we get closer to the 5 million-mark. When will we get to 6 million? Our population projections are an indication of the overall trend, rather than exact forecasts year by year. They are not predictions — the actual population growth could be lower or higher than median projection depending on factors including highly volatile migration.

      The latest base projections indicate that New Zealand will probably reach the 6 million mark in the mids. However, it could be as soon as the s, particularly if migration remains at historically high levels. The population of New Zealand reached one million in , two million in , three million in and four million in Note: Figures for — are 'estimated resident population'.

      Figures for —90 are calculated by subtracting estimated natural increase and net migration from population estimate. So that our news remains free to the public, all professional organisations must have a ScoopPro license includes Pro news tools. Are we there yet? Business Headlines Sci-Tech Headlines.