By Janika ter Ellen
The Reserve Bank has relaxed borrowing rules for our banks as the European debt crisis deepens.
The Italian bond market is the latest victim. It's becoming increasingly clear New Zealand is unlikely to escape.
There has been a sobering warning from the head of the International Monetary Fund today.
The septic European Debt Crisis is spreading. No country, says the IMF’s Christine La Guard, can go it alone, and our Reserve Bank agrees.
“The longer this goes on, the more likely it is there will be implications in terms of reduced credit, and a higher cost of credit,” says deputy Reserve Bank Governor Grant Spencer.
Foreign funds are getting harder to secure, so the Reserve Bank has delayed the introduction of tougher funding rules for our banks.
“This measure today gives banks a bit more freedom to find other ways to raise money and not have to rely on the very long-term and more mums-and-dads funding in New Zealand,” says interest.co.nz’s Bernard Hickey.
Despite high farm and government debt...the central bank is downplaying a large risk to the New Zealand economy, saying a stable China might just see us through, but not everyone agrees.
“There is a real risk of a long downturn in Europe and the US, and NZ can't separate itself from that,” says Mr Hickey.
“New Zealand will be affected in the long run in terms of higher unemployment, lower growth, and higher interest rates.”
Commentators are already calling the collapsed Italian bond market Europe's "Lehman Brother's moment" and while no-one is saying this crisis will be as bad as 2008, it's clear we aren't immune.
3 News