Reserve Bank warns US tariffs pose risk to NZ financial stability
'However, lower borrowing costs and high agricultural export prices are supporting debt serviceability,' it said.
The Reserve Bank said the banks have strong capital and liquidity buffers in place to maintain credit flows even if conditions deteriorate further.
'They also remain profitable, with non-performing loans expected to decline as mortgage rates reprice lower.'
Global equity prices have declined and corporate funding spreads, both domestically and offshore, have widened from low levels, the Reserve Bank noted.
Long-term yields on US government bonds were volatile.
'Trade restrictions are a key risk to New Zealand's financial stability,' the Reserve Bank said.
'The impact of tariffs on our trading partners is expected to lower demand for our exports.
'Some agricultural industries that have limited scope to divert products from the US to alternative markets are more vulnerable to US tariffs.
'Banks are well placed to handle temporary dislocations in overseas funding markets.
'The direct impact of US tariffs on New Zealand exports could be severe for industries heavily exposed to US demand, although they are only a small part of the overall economy.'
New Zealand's largest exports to the US are meat, dairy products, and wine.
'US tariffs are also expected to have indirect impacts on New Zealand, by targeting our key trading partners and reducing their growth.
'These indirect impacts of tariffs on our trading partners may carry greater risk to financial stability than direct impacts,' it said.
High export prices have supported cashflow in the dairy sector.
Rising global commodity prices have improved conditions in many parts of the agriculture sector.
Dairy sector
Dairy sector conditions have improved over the past six months as international prices rose to elevated levels.
Fonterra's farmer suppliers may also benefit from a one-off payment from the cooperative's sale of its global consumer business, although the timing and size of the payment are uncertain, the bank said.
Lower farm-cost inflation has also eased cashflow pressures.
Improved cashflow will allow dairy farmers to continue to reduce debt and increase their resilience to future downturns.
Household and business demand for credit remains weak despite lower interest rates.
Many borrowers rolling off fixed rates are moving on to floating rates or shorter-term fixed rates, it noted.
These borrowers are waiting for further Official Cash Rate cuts before re-fixing for longer terms. The effective (weighted average) mortgage rate across all borrowers remained close to its peak.
'We expect around 60% of mortgage lending to reprice to lower rates within the next six months, and around 80% within a year,' the bank said.
Progress is continuing on the implementation of the Deposit Takers Act 2023.
The Depositor Compensation Scheme will come into effect on July 1 this year.
The scheme will protect depositors' funds in the event of a deposit taker failure and is a significant milestone for enhancing trust and competition in the financial system, the bank said.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Otago Daily Times
an hour ago
- Otago Daily Times
NZ 'back on course', govt says
By Russell Palmer of RNZ The government has launched a defence of its record on tackling the cost of living. Finance Minister Nicola Willis joined Prime Minister Christopher Luxon at the Beehive Theatrette for the weekly post-Cabinet briefing. She spent much of the previous week facing questions about her meeting with Fonterra chief executive Miles Hurrell. Luxon said this week marked a full year since the tax bracket changes National campaigned on had come into effect. "It's only through a strong economy that wages rise faster than inflation, that Kiwis can get ahead of their daily costs and our businesses can take risks that can mean that they can invest, grow, and create more jobs," he said. He directly targeted National's main rival in opposition. "Other parties in Parliament believe that raising taxes, growing the public sector, and giving more handouts to those who refuse to work is the answer. Taxing more, spending more, and borrowing more as Labour and others advocate for didn't work in the past and it won't work in the future." The government's decision to increase fees paid to board members on Crown entities - in some cases up to 80 percent - may undercut the messaging that National is prioritising low and middle-income New Zealanders' interests. But Luxon today pointed to the building products changes announced over the weekend, and the proposed ban on payment surcharges as recent examples. He then pointed to other items in the government's agenda, including: the current pipeline of infrastructure projects, Roads of National Significance, completing the City Rail Link, signing trade deals with the United Arab Emirates and Gulf Cooperation Council, starting negotiations with India, the digital nomads visa, and the Investment Boost policy. Willis soon picked up the baton, rattling off her own list of changes the government had made which she said had helped lower costs, including: the Family Boost policy, ending the Reserve Bank's secondary mandate to account for unemployment, curbing government spending, changing residential tenancy laws, tax deductability changes for landlords, delaying the previous government's petrol excise increases, scrapping the Auckland Regional Fuel Tax, increasing rates rebates for seniors, increasing Working for Families support, and extending maximum subscription lengths. She said National had campaigned on tackling the cost of living crisis, and pointed to rising GDP per capita and wages rising faster than inflation as a result of the government's interventions. "Taking the pressure off inflation - that is the general level of price increases across the economy - helps with the cost side of the cost-of-living equation. Lower inflation means less pressure on prices... it's pleasing to say that wages are now growing faster than inflation and forecasts show this trend continuing over the next few years." She said the government's tax changes meant "households have benefited by an average of $60 a fortnight". The change to interest deductibility for landlords had helped to take the heat out of the rental market, she said, noting "the 2.6 increase for the year to June was the lowest since 2011". She said the government was also making big structural changes, saying "the last government conclusively proved that band aids are not enough" and pointing to a series of policies yet to come to fruition: the Going for Housing Growth policy, Fast-tracking renewable energy consenting, work to address supermarket competition, and to curb council rates increases. "Economies are like oil tankers, you can't turn them around on a dime. But New Zealand is back on course," Willis said. The lists of government achievements kept coming, with Willis also pointing to: education reform, the investment boost (again), promoting global trade and investment, changes to the research and development sector, and "delivering infrastructure projects faster and better". Meanwhile, a Cabinet Office Circular reveals the government signed off on increases to fees available to board members of Crown entities. This includes increases of 30 percent for Group 2 and 4 boards and Audit and Risk committees, and an increase of 80 percent for Group 3 bodies. Luxon said the public sector director fees "have got completely out of whack compared to private sector fees". "Obviously we will never pay as much as someone in the private sector but when you are spending $32 billion on healthcare for example, it's important that we are actually able to attract really good governors for the Health NZ board, for example," he said. The changes took effect at the start of July.
1News
19 hours ago
- 1News
'Call me Mr Cash Man': MP seeks protection for hard currency
Self-proclaimed cash advocate and MP Jamie Arbuckle believes his proposed law protecting hard currency transactions is about more than accessibility — it's also about privacy and preventing "Big Brother" surveillance. The New Zealand First MP's members' legislation, the Cash Transactions Protection Bill, would require vendors to accept cash up to the value of $500, with no limits on the amount of cash that must be accepted for essential items like fuel and food. 'There's a real concern across New Zealand that we're becoming a cashless society, and we've got a lot of people who depend on cash,' the MP told Q+A. He said that particularly applied to people living in rural areas, the elderly who are more comfortable using cash than digital systems, and those on low incomes. A self-professed fan of using cash, Arbuckle said, 'cash is king, and you can call me Mr Cash Man if you like.' ADVERTISEMENT 'I've got to tell you right now, I don't like walking into a shop and not being able to pay cash for a coffee.' Composite image by Vania Chandrawidjaja (Source: iStock/1News) But he said in an increasingly digital world, there was a more serious point to be made about the ability to make anonymous payments. 'People are telling me they want to have the ability to use cash, it's a freedom of choice issue.' 'It's really the only true way of having privacy in a transaction. You don't get that with electronic payments. There's always the concern that Big Brother or someone is able to look at where you've been, what you've purchased, so the majority of people have been very positive about protecting cash use.' A Reserve Bank survey released in June 2025 found that — while electronic and debit card use was by far the most common method of making payments — a significant minority of the country continued to use cash regularly. Around 46% of respondents said they used cash 'to pay for everyday things', down slightly from 48% which an equivalent survey found in June 2023. ADVERTISEMENT The survey also found a majority had used cash at least once in the seven days preceding the survey being taken, with approximately 33% of respondents saying they hadn't used cash in the last week, and a further 3.6% saying they would never use cash. Further research undertaken last year by the Reserve Bank found Kiwis value being able to use physical cash. Director of money and cash Ian Woolford said, '84% of respondents were worried about losing access to banknotes and coins, and want assurance that cash will still be issued by the Reserve Bank and not reduced or replaced by digital cash.' 'We'll keep issuing cash for as long as New Zealanders want to use it," he said in December. "We're doing a lot of work to redesign the cash system, including helping retailers through community cash services trials next year in several rural communities lacking over-the-counter bank or ATM services.' Some businesses have moved to being cash-free, but Arbuckle said in his view, it couldn't be an opt-in and opt-out system. 'The majority of businesses hold cash, so we're only talking about a small amount of businesses that would have to change. ADVERTISEMENT "Cash is legal tender, and you should be able to purchase with cash.' He said if the bill is pulled out of the member's bill biscuit tin, he'd welcome feedback from businesses that might be affected during the select committee process. Q+A with Jack Tame is made with the support of New Zealand On Air
1News
a day ago
- 1News
Why NZ can't shake the recession: 'Brought to its knees'
New Zealanders were told to "survive till '25" for the economy to pick up - but now one major bank economist says it's probably going to be 2026 before any real improvement happens. Kiwibank's latest Annual Regional Note shows small improvements across the country, but weak scores overall. The national average score has lifted from three out of 10 to four. Southland and Otago top the table at five. Otago was boosted by a recovery in international tourism and improvement in employment. Northland, Taranaki and Gisborne went backwards. Taranaki had the biggest fall in employment of anywhere in the country, at 8%. Northland reported a double-digit drop in building consents. ADVERTISEMENT Retail sales remain below their average levels over the past decade in most regions, as weak household confidence weighs on consumption. Kiwibank said Wellington recorded the steepest annual decline at -3.3%, while regions like Waikato, Northland and the Bay of Plenty experienced a slight improvement on last year. 'Wellington is just more pessimistic' Wellington's score improved from a two out of 10 to a three out of 10 while Auckland lifted from a three to four. "Wellington is just more pessimistic," Kiwibank chief economist Jarrod Kerr said. "It's gone through a lot in recent years. You can see it in their activity, you can see it in the housing market. You can see it in the economy, the city has been brought to its knees and it's been struggling to shake the pessimistic vibe." He said both Auckland and Wellington were well below average. "If you look across the regions, some of them have gone backwards and others are improving but it's not good. "When you look at the South Island things are better, people are definitely more optimistic in the South Island but even then the top-scoring regions get a five out of 10." ADVERTISEMENT He said the report helped solidify the view that rate cuts to date had not been enough to turn around the economy. "We're really crawling out of this recession rather than regaining our footing and looking to grow from here. We're still struggling across the entire country." He said Kiwibank customers last year had talked about needing to hold on until this year. "We are halfway through the year and, yes, things are better but only by a little bit." Worse off than Australia New Zealand was worse off than Australia, he said. "Their economy is much stronger than ours but in their terms it's soft… where everything washes out is the labour market and, you know, the unemployment rate tells you a lot. Our unemployment rate is over 5% and theirs is pretty close to 4%." ADVERTISEMENT Part of the reason was the more aggressive interest rate hikes from the Reserve Bank, he said. "We were much more aggressive in our rate hikes than in Australia. We were much more aggressive on inflation than across the Tasman. "I think both the RBA and RBNZ made mistakes as I think every central bank did through the Covid period, we overstimulated in hindsight but at the time it was the right thing to do. And then we had to deal with the inflation problem." He said the Reserve Bank had kept the official cash rate at 5.5% for too long as it worked to tackle inflation. "We had a really bad recession last year, which the Reserve Bank openly orchestrated, they said 'look, we need a recession to get inflation back down'. The Australians didn't orchestrate a recession, they didn't slam the economy into the floor." Kerr said recovery was still coming but he had hoped it would have started more obviously by now. "We're hoping it takes off in the second half of this year as more and more people refix on to lower rates. Then it's more of a 2026 story now."
