June 2007 Reserve Bank Bulletin released

The Reserve Bank today released the June 2007 issue of the Reserve Bank of New Zealand Bulletin.

One of the most frequent questions for the Reserve Bank is how changes in the Official Cash Rate (OCR) affect inflation. The first article of this issue looks at how monetary policy influences the general price level. The article discusses the channels that the Bank considers to be the most important as well as those that have a more uncertain effect.

The second article reports on a review of the trade-weighted exchange rate index (TWI) that the Reserve Bank has undertaken over the past year. Following this review, the Bank intends to begin publishing an extended 14 currency TWI to supplement the 5 currency TWI. This extended TWI includes the currencies of a number of Asian economies with which New Zealand's trade has increased markedly in recent years. The article notes that the 14 currency and five currency indices have not been substantially different in history, but this could change in the future given a world of increased exchange rate flexibility, especially in Asia. The extended TWI will be available via the Bank's website.

In today's complex banking environment, banks commonly outsource many of their business activities to external providers. The third article explains the Reserve Bank's policy on the outsourcing of these activities and the principles underlying this policy.

The final article discusses the importance of financial literacy among households -- the ability to make informed judgements and decisions around the use of money and credit. This is an important area and a number of agencies are supporting improvements in New Zealanders' financial literacy in different ways. The article reviews the available evidence about financial literacy and identifies potential areas of concern. It then briefly outlines some of the initiatives underway to improve financial literacy and assesses what else needs to be done.

ENDS

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