- Central bank releases semi-annual Financial Stability Report
- Says banks well placed to manage rising loan defaults
New Zealand’s central bank said the country is experiencing a pronounced economic downturn that could get worse.
“Households have reduced their discretionary spending and businesses have put investment plans on hold,” the Reserve Bank said in its semi-annual Financial Stability Report published Tuesday in Wellington. “While business confidence is recovering as inflation and interest rates fall, significant further weakening in the economy remains a risk.”
New Zealand’s economy contracted in the second quarter and is projected to have shrunk further in the three months ended September, putting it back in recession. A report tomorrow is expected to show the jobless rate increasing to 5%, a four-year high.
The RBNZ began cutting interest rates in August and stepped up the pace last month, when it lowered the Official Cash Rate by 50 basis points to 4.75%. Most economists expect another 50-point reduction at the final rate decision of the year on Nov. 27.
“Rising unemployment is causing financial difficulties for affected households,” the RBNZ said today. “Banks expect the non-performing share of their lending to increase, although still well below previous recessions.”
Banks are in a strong financial position to manage loan defaults and they continue to be profitable, the central bank said.
“The financial system is well positioned to continue providing credit to the economy, even if the downturn gets worse,” it said.
The RBNZ will hold a press conference at 1 p.m. local time today to discuss the Financial Stability Report.
Written by: Tracy Withers @Bloomberg
The post “New Zealand’s Economic Downturn Could Get Worse, RBNZ Says” first appeared on Bloomberg