25 Mar 2011

Musings on financial instruments by Bollard

12:39 pm on 25 March 2011

Reserve Bank Governor Alan Bollard says macro instruments may help the financial system in times of crisis and moderate credit cycles, but expectations must be realistic.

Macro-prudential instruments are policy tools that might be used to promote a more stable and resilient financial system and help smooth the credit cycle, reducing the risk of booms-and-busts.

Dr Bollard told a conference in Sydney that the Reserve Bank has not had any pressing need to use these tools in recent times, because of the weakness in the credit cycle.

But Dr Bollard said the bank needs to keep preparing for how it might deal with credit and asset prices booms when they occur again in the future, and could consider using credit-based measures, accounting tools, liquidity instruments and capital buffers.

He says none would be a silver bullet to moderate the credit cycle, but they could make a useful contribution.