Dominick Stephens, chief economist at Westpac, points out that the Reserve Bank of New Zealand surprised markets in December by proposing that banks should be required to hold far more capital.
Key Quotes
“Higher capital requirements will lead to upward pressure on bank lending rates and downward pressure on bank deposit rates.”
“Higher lending rates would impact asset prices and GDP. The RBNZ would react to that by running a lower OCR than otherwise.”
“We do not expect higher capital requirements to affect the neutral OCR, as others have suggested.”
“The final form of the capital requirements is uncertain and any impact on the OCR is years away, so the immediate implications for markets are limited.”
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