The exchange rate hit a two year high on the Trade Weighted Index (TWI) last week. Our consistently overvalued exchange rate continues to be an issue for the competitiveness of manufacturers and the wider tradable sector, and we need to investigate ways to bring it back to a sustainable level over time, say the New Zealand Manufacturers and Exporters Association (NZMEA).

NZMEA Chief Executive Dieter Adam says, “The exchange rate hit a two year high on the TWI last week, and while it has dropped back less than a cent since, it remains at a level that damages the competitiveness of our manufacturers and tradable sector.

“This is not a new issue – our exchange rate has been consistently overvalued over the last decade, the average of which has been over 10 percent higher than the previous two decades in TWI terms. This does not, however, mean we should accept the current level as inevitable. We need to see some fresh thinking on how to create conditions that can give our economy a more sustainable exchange rate over time, from both the Reserve Bank of New Zealand (RBNZ) and Government.

“A competitive and fairly valued exchange rate is a key component of ensuring our productive manufacturing and exporting sectors can grow over time, bringing quality jobs and much needed export income. The failure to make ground on the Government's target of improving exports to 40% of GDP has no doubt been hampered by the consistent overvaluation.

“In terms of the RBNZ’s OCR decision tomorrow, we believe holding the current rate is the right move. While we are starting to see signs of an inflation uptick, moving rates up prematurely, as we saw in 2014, would add additional pressure onto our exchange rate.

The exchange rate is currently around 4% above what the RBNZ forecast for the upcoming March quarter.” Says Dieter.

|  An NZMEA release  |  February 8, 2017  ||

Finance Minister Steven Joyce will appoint current Deputy Reserve Bank Governor Grant Spencer as the Acting Governor of the Bank for six months, following the expiry of current Governor Graeme Wheeler’s term on September 26 this year.

"Mr Wheeler's term as Governor expires on September 26, three days after the general election, and he has decided not to seek reappointment," Mr Joyce says. "Following advice from the Cabinet Office and consultation with Cabinet, I have decided that the most appropriate course of action would be to appoint an acting Governor for a six month period to cover the post-election caretaker period. This will give the next Government time to make a decision on the appointment of a permanent Governor for the next five year term.

"I have decided to appoint Mr Spencer as acting Governor from 27 September 2017 to 26 March 2018, on the advice of the Reserve Bank Board of Directors. The Government is pleased to have someone of his calibre to move into the role. He is a highly experienced member of the Bank’s Leadership team who will provide stability and continuity through this caretaker period prior to the appointment of the new Governor."

Mr Joyce and Mr Spencer have agreed that there will be no change to the Policy Targets Agreement for the period Mr Spencer will be acting Governor.

Mr Spencer has advised the Government that he won't be applying for the permanent role, and intends to retire following his period as acting Governor.

The Bank has had one previous acting Governor. Former Deputy Governor Rod Carr was appointed in an acting capacity for the pre-election and caretaker period around the 2002 General election, following the resignation of Governor Brash.

Mr Joyce thanked Governor Wheeler for his service to the Bank.

"The Governor has performed his role calmly and expertly during a highly unusual period for the world economy. I thank him for his service up until now and for the remainder of his term as Governor," Mr Joyce says.

| A Beehive release  |  February 7, 2016  ||

Reserve Bank Governor Graeme Wheeler today announced that he will not be seeking a second term as Governor when his current term ends on 26 September this year.

Mr Wheeler said: “It has been a great privilege to serve in this role, and in the remaining eight months I will remain fully focused on the economic challenges and opportunities facing the New Zealand economy. It was my intention, when I was appointed, to serve one term, and then to take on governance roles.”

Mr Wheeler was previously employed at the World Bank from 1997 until 2010, where he was Managing Director Operations (2006-2010), and Vice-President and Treasurer (2001-2006). From 2010 to 2012, he ran his own advisory business in the United States.

Under section 40 of the Reserve Bank of New Zealand Act, the Governor is appointed for a five-year term by the Minister of Finance, on the recommendation of the Reserve Bank Board.

The Chair of the Reserve Bank Board, Professor Neil Quigley, said the Government has advised the Board that, because of the proximity of the General Election this year, the Board’s recruitment process to identify a successor to Mr Wheeler needs to commence later in the year, and an acting Governor would be appointed to cover the post-election caretaker period.

The Minister of Finance, Steven Joyce, has, on the Board’s recommendation, announced the appointment of Grant Spencer under section 48 of the Reserve Bank Act to act as Governor for a period of six months on the conclusion of Mr Wheeler’s term. Mr Spencer had indicated his intention to retire this year but has agreed to defer in order to fill the acting role.

Mr Spencer is Deputy Governor and Head of Financial Stability, a position he has held since 2007. He serves as chair of the OECD's Committee on Financial Markets, and has held senior management positions at the Bank in economics and financial markets.

In 1995-2004, Mr Spencer was with the Australia and New Zealand Banking Group, holding senior management roles in treasury and strategy in New Zealand and Australia. He has also served terms with the International Monetary Fund as a Special Advisor, European Department, and as New Zealand’s Alternate Executive Director.

Higher than forecast tax revenues are the primary reason the Government accounts for the first five months of the financial year are ahead of forecast, Finance Minister Steven Joyce says.

The Government’s financial accounts to 30 November 2016 were released today, and they show that the Crown’s Operating Balance before Gains and Losses (OBEGAL) was a deficit of $768 million, which was $936 million better than the Treasury projected at the Half Year Fiscal Update (HYEFU).

"Stronger economic growth is flowing through to the Government's tax take'" Mr Joyce says. "Tax revenue for the five months to November is $460 million ahead of forecast in the Half-Year Update, and $1.4 billion ahead of Budget 2016 forecasts."

Mr Joyce says that it is appropriate to remain very cautious in terms of what the increased tax receipts might mean for the full-year financial result.

“Treasury's Half-Year Update forecast a $473 million surplus for the whole 2016/17 year,” Mr Joyce says. “It is far too early to say whether that surplus will be able to be achieved.

"These accounts include the first tranche of the Government's expenses related to the Kaikōura earthquake, with just under $700 million of EQC estimated costs being included. It will still be some time before the full cost of the recovery is known."

"The Earthquake again demonstrates the importance of the National-led Government’s prudent financial management. Getting back to surplus and repaying debt in the good times means we are in a position to support communities at times like this when they're in need.

“More generally these accounts underline the importance of strong fiscal discipline as we continue to build up our financial resilience in a relatively uncertain world. We need to remember that Budget 2016 forecast only a small surplus for the full financial year.”

| A Beehive release  |  January 26, 2017  ||

The Reserve Bank has released a Bulletin article examining the core macro-economic model it uses to support the monetary policy decision making process.

The New Zealand Structural Inflation Model (NZSIM) provides the central organising framework for the Reserve Bank’s forecasting and economic analysis. It is a structural model that provides a platform for evaluating the growth and inflation effects of various economic scenarios, including potential policy responses.

The Bulletin article provides a brief review of the Bank’s recent forecasting models, the philosophy underpinning the design of NZSIM and explains how the model is used in the Reserve Bank’s forecasting process.

More information

• Read the Bulletin article
• Listen to the Behind the Bulletin interview.
• See a simplified and stylised depiction of the Reserve Bank’s economic model.

|  A RBNZ press release |  January 19, 2017  |

The Reserve Bank has appointed Klarissa Plimmer as Chief Information Officer and Patrick Hoerler as Head of Risk Assessment and Assurance.

As Chief Information Officer, Klarissa Plimmer is responsible for the Bank's information management and technology. Ms Plimmer was previously the Director ICT Solution Delivery at the New Zealand Defence Force, and has worked in a number of ICT leadership roles at the BNZ for 13 years.

Patrick Hoerler heads the Bank's Risk Assessment and Assurance unit, which is responsible for ensuring that financial, operational, and reputational risks faced by the Bank are identified, monitored and managed in line with best practice. The unit includes the Bank's internal audit function and legal services.

Before joining the Bank Mr Hoerler was the Risk Assurance Officer for Mercury (formerly Mighty River Power and Mercury Energy) and was previously their treasurer. Mr Hoerler has a background in international banking, working with Credit Suisse and Zurich Kantonalbank in the US and Asia before migrating to New Zealand to work as treasurer for ENZA and in banking with HSBC.

|  A RBNZ release  |  January 13, 2017  |

The New Zealand Bankers’ Association announced today that the Industrial and Commercial Bank of China (New Zealand) Ltd has joined the association, bringing the total number of member banks to 16.

New Zealand Bankers’ Association chief executive Karen Scott-Howman says: “We are delighted to welcome ICBC to the Bankers’ Association. China is one of New Zealand’s top trading partners. Having Chinese banks here helps take that important relationship to another level.

“ICBC’s participation in the New Zealand banking industry further enhances competition and diversity in the sector”, adds Scott-Howman.

Industrial and Commercial Bank of China (New Zealand) chief executive Qian Hou says: “ICBC’s aim is to strengthen trade opportunities between China and New Zealand, and also to contribute to the New Zealand economy by investing in infrastructure projects.”

ICBC was the first Chinese bank to gain a licence to operate in New Zealand. The bank offers its clients comprehensive corporate and retail services with a focus on boosting the bilateral economic and trade relationship between New Zealand and China.

|  A bankers Association release  |  January 11, 2017  |

ANZ today announced an agreement to sell UDC Finance, the asset finance business of its wholly owned subsidiary ANZ Bank New Zealand, to HNA Group, a global company focused on tourism, logistics and financial services.

The sale reflects a continued focus by ANZ on simplifying its business and capital efficiency.

ANZ New Zealand CEO David Hisco said: "The sale of UDC is consistent with our strategy to simplify the bank and is a good outcome for customers and staff. HNA Group is one of the world's largest asset finance and leasing companies, and it intends to preserve UDC's operations including offering continued employment to all staff."UDC Transaction and Financial Summary

Sale Price

~NZ$660m

Premium to Net Assets (30/09/2016)

~NZ$235m

Price-to-Book Ratio (UDC net assets 30/09/2016)

~1.6 times

}}} Continue to read full release |  January 11, 2017  |

The Reserve Bank has released a new animated video explaining banking sector stress tests.

Stress testing is a tool to assess how banks might cope with a severe economic downturn.

The two-minute animated video explains how stress tests work and why the Reserve Bank uses them to monitor and respond to risks in the banking sector.

The video is part of a series of animated videos prepared by the Reserve Bank. These include ‘The OCR and how it works’, ‘What is the economy?’, ‘Compound Interest’ and ‘What is money?’.

Watch the video here: http://www.rbnz.govt.nz/research-and-publications/videos/stress-testing-animated-video

The factory to the world has a new export: inflation. And it’s shipping faster than many thought possible just a few months ago.

China’s weakening yuan, stimulus designed to ensure robust growth ahead of a crucial Communist Party Congress next year, and rebounding commodity prices are pushing up factory prices. Having turned positive in September for the first time in more than four years, producer prices rose 1.2 percent in October from a year earlier. That will almost double to 2.3 percent in November, according to analysts surveyed ahead of data due Friday.

The pace is seen quickening even more next year: JPMorgan Chase & Co. estimates factory inflation will rise to as high as 4 percent in the first quarter while Commonwealth Bank of Australia sees it peaking at 6 percent in the third quarter of 2017.

Such increases would ripple through China’s vast supply chain across Asia, and to consumer markets from New York to New Zealand. The price turnaround coincides with a recent spike in oil prices and rising expectations for global reflation as U.S. President-elect Donald Trump prepares to boost fiscal and infrastructure spending.

Continue to full Bloomberg released article