Bollard's highs, lows as RBNZ head
Tue, 18 Sep 2012 12:50p.m.
By 3 News online staff
Dr Alan Bollard says in his 10-year tenure as Reserve Bank governor the global financial crisis was by far his biggest challenge.
The crisis, followed by the Christchurch earthquake, forced him to slash interest rates to an historic low of 2.5 percent.
Critics point to the housing market boom which they say got away from Dr Bollard in the years leading up to 2007 - with the benefit of hindsight, Dr Bollard says he could have done more.
3 News business editor Michael Wilson sat down with Dr Bollard to discuss his time at the helm of the Reserve Bank.
The moment the crisis struck
“It was a difficult time. We had seen imbalances building up and we knew they couldn’t continue – we knew something would stop that but we didn’t know how or when.
“When it came, it was pretty virulent. At that stage, most of it was occurring in the United States and Europe. We were spectators here but when something happened over there, we had about 10 seconds before it came on our screens and had an impact here,” he says.
His worst time at the RBNZ
“For me, the worst time was definitely after [the] Lehman’s [Brothers crash] in late 2008. At one stage, we started hearing from banks in New Zealand and they were asking for more cash supplies – that is not something you want to hear.”
He says people became uncertain about the system in New Zealand and the RBNZ had to move quickly to maintain stability.
“Much of this time we’ve been observers and that’s been a much better place to be in,” he says.
How close we came to a ‘financial apocalypse’
Mr Bollard says in retrospect the world came much closer to the brink of a ‘financial apocalypse’ than first thought.
“There certainly was a time when people in these positions just weren’t enjoying it. It was tense,” he says.
“We were glued to what has happening on the electronic screens and talking to colleagues around the world - there were times when we didn’t know what would happen next.”
The personal toll of the global financial crisis
“When you wake up in the middle of the night and you are just worrying about things – you get the migraines – it’s just the stress and that what happens.
“You have to have a good organisation and people help you through it but sure it does [take a personal toll].
His biggest regret
Dr Bollard admits more could have been done to control the housing market boom.
“From pure hindsight, we might have pushed a bit harder in the middle 2000s.
“We might have tried out some of these macro financial instruments, basically making capital more expensive for banks and making them less interested in lending as freely.
But he says if New Zealanders are set on borrowing from foreigners to invest in housing, then bad effects are inevitable and “that’s pretty much what happened”.
When the global financial crisis will finish
Dr Bollard says New Zealand hasn’t been hit too badly by the GFC but it’s far from over.
“It’s gone on longer than we first thought. There are different parts to it – it was definitely a financial crisis, then it became a global economic crisis and more recently it’s been a sovereign debt crisis.
“Maybe we are heading for a prolonged period where we don’t enjoy the growth rates we had back in the 2000s
“We’re in growth and we are growing reasonable but not vigorously and I can’t see that happening in the near future
The pros and cons of capital gains
Dr Bollard says putting politics aside there are merits for both sides of the capital gains debate.
“If you have a tax regime that distorts property, then I think that’s a bad thing. But there is an argument that we are the only OECD country without some form of capital gains tax. It’s practically difficult to put in place.
“You wouldn’t want a complicated thing but there is something we could do at the margin.
“I support whatever it takes to ensure that New Zealanders are in an environment where they don’t have distorted incentives on the decisions they make on whether to take a foreign holiday, should I buy a house, should I invest in a business,” he says.
What next for Dr Bollard
Mr Bollards is moving to Singapore to take up the role as APEC Secretariat.
He says many of APEC’s targets to liberalise trade and investment haven’t been reached, which he would like to address.
“I’m going to help make it work better, I hope,” he says.
His successor Graeme Wheeler
He wishes Mr Wheeler a “boring time” because that means stability.
“I don’t think he will [have a boring time] but that’s what it’s all about here is stability – economic stability, financial stability.
“I’m sure he’ll deal with all the challenges and it will be a better Reserve Bank as a result,” he says.
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