Global Financial Stress Will Test Resilience

The rising global interest rates necessary to curb inflation will test New Zealand’s financial resilience, Governor Adrian Orr says in releasing the November 2022 Financial Stability Report

“While our financial system as a whole is resilient, some households and businesses will be challenged by the rising interest rate environment,” Mr Orr says. “It is important that financial institutions take a long-term view when supporting customers and allocating credit to the wider economy,” Mr Orr says.

Global supply chain disruptions, ongoing food and energy supply shocks, scarce labour resources, and the lagged effects of fiscal and monetary policy have all contributed to high inflation.

Central banks have rapidly tightened monetary settings to ensure that inflation expectations remain anchored, but the extent to which economic activity will slow remains uncertain.

There are increasing downside risks to the global economic outlook. Despite New Zealand’s high levels of employment and a sound government fiscal position, we are not immune to these risks, Deputy Governor Christian Hawkesby says.

“Rising household debt servicing costs and declining household wealth will put pressure on domestic spending in the near term, but we are confident that the financial system is well placed to support the economy,” Mr Hawkesby says.

“Banks’ capital and liquidity positions are strong, and our recent stress tests have demonstrated banks’ resilience to severe economic scenarios.”

Financial institutions will need to continue investing in their systems, governance and risk management to build their long-term resilience.

In coordination with our regulatory partners, we are committed to working with the industry to support financial stability while ensuring our priorities are risk-based, evidence-led and outcome-focused.

More information

• November 2022 Financial Stability Report

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