Reserve Bank Releases 2006-2007 Annual Report

The Reserve Bank today released its 2006-2007 Annual Report, covering the year to 30 June 2007. Reserve Bank Governor Alan Bollard said as well as focusing on maintaining price stability during the year, the Bank saw other important developments in foreign exchange, banking, financial systems, payment systems and currency.

Local and global conditions changed markedly during the year. Strong household consumption and booming dairy prices posed higher inflationary pressures and the Official Cash Rate was raised four times. The New Zealand dollar reached post-float record highs, which the Bank judged exceptional and unjustified.

As a result, the Bank took a number of steps. It intervened to sell the New Zealand dollar, and for the first time it sold New Zealand dollars to hold a proportion of foreign reserves on an unhedged basis.

Dr Bollard noted that the Bank's unhedged net holdings of foreign reserves at 30 June 2007 were $701.0 million (these have since been built up with a $2.561 billion open position reported at 31 August), and the Bank reported an unrealised loss on currency intervention activities of $11.57 million (this has since turned to an unrealised profit).

The Bank also looked at other instruments to help the OCR in controlling inflation, and it has been engaged in a Parliamentary inquiry into the monetary policy framework.

"Monetary policy cannot do everything. Appropriate agencies could help by looking more closely at measures to enhance housing supply, the tax environment for housing, and ways to limit fiscal pressures when the economy is tight," Dr Bollard said.

Later in the year, the New Zealand dollar came off its highs as the US subprime mortgage market developments led investors to become more risk-averse and global liquidity tightened.

Behind the scenes, the Bank upgraded and put in place new governance rules to its payments system, which handles about $40 billion of transactions a day. And it completed one of the biggest physical projects the Bank has ever undertaken with the modernisation of New Zealand's small denomination coins.

The Reserve Bank spent a net $29.1 million on activities covered by the Bank's Funding Agreement, which was 14 percent below the $34 million in the Agreement. The Bank generated a surplus of $332.9 million. A dividend of $193.0 million will be paid to the Crown.

The Annual Report can be viewed on the Reserve Bank website (www.rbnz.govt.nz).

ENDS

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