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Speaker 1: Crayon Bridge.

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Speaker 2: Now the International Monetary Fund, the IMF is today released

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Speaker 2: it's yearly report on the State of our economy, and

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Speaker 2: it's not too keen on the government deregulating banks to

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Speaker 2: spur more competition in the sector. Jane chip Trainee is

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Speaker 2: The Herald's Willington business editor. She's been breaking a looking

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Speaker 2: into this for USA Good Evening. Hey, Ryan, so why

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Speaker 2: are they worried about less regulation?

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Speaker 1: Well, the IMF is basically just cautioning the government. It's saying, hey,

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Speaker 1: make sure that these rules that the Reserve Bank puts

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Speaker 1: in place that require banks to have strong balance sheets,

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Speaker 1: make sure that those rules are actually focused on the

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Speaker 1: main thing, which is maintaining financial stability. Don't you know.

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Speaker 1: It's not saying it quite so explicitly, but it's saying

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Speaker 1: in the IMFs was the primary objective of prudential regulation

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Speaker 1: should be to safeguard financial stability. So it's making this warning.

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Speaker 1: And the relevance of this is that Nikola Willis is

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Speaker 1: looking at whether she should override the way the Reserve

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Speaker 1: Bank regulates banks because she thinks that potentially if some

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Speaker 1: of these rules are watered down a bit, banks might

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Speaker 1: leand more freely, their interest rates might be a bit lower,

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Speaker 1: and big and small banks might be able to compete

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Speaker 1: more freely. So there's definitely a trade off here. On

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Speaker 1: the one hand, you've got, you know, making sure the

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Speaker 1: banks are super strong, they've got lots of capital. But

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Speaker 1: you know, on the other hand, it's like, well, are

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Speaker 1: we overdoing it? The IMEF is saying, make sure that

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Speaker 1: the main goal of the rules is actually to maintain

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Speaker 1: financial stability.

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Speaker 2: Yeah, especially with a country like ours, where you know,

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Speaker 2: we're an earthquake away from it all being over. It's

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Speaker 2: funny you say they didn't say this explicitly. The IMF

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Speaker 2: doesn't say anything explicitly this report. It's so hard to read.

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Speaker 2: It's like you need a telescope, a dictionary in another language.

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Speaker 1: Yeah, yeah, you know, it's like prudential regulation. You know,

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Speaker 1: it's not that radio friendly.

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Speaker 2: What else did the IMEF have to say about the economy?

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Speaker 1: Well also said that the Reserve Bank should be ready

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Speaker 1: to use it has another long word macro prudential tools,

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Speaker 1: that it should be ready to tighten those loan to

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Speaker 1: value ratio restrictions and it's debt to income restrictions if

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Speaker 1: low interest rates see the housing market take off, and

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Speaker 1: see banks do lots of risky lending. So those are

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Speaker 1: those rules that mean you need to have it that

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Speaker 1: you generally need a twenty percent deposit if you're an

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Speaker 1: owner occupier and you need to have enough income relative

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Speaker 1: to the size of the loan that you want. There

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Speaker 1: are those rules in place, and it's it's set a

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Speaker 1: warning that actually the Reserve Bank should be ready to

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Speaker 1: tighten those if necessary.

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Speaker 2: Interesting, and now I noticed in that IMF report they

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Speaker 2: said year get year OCR back to neutral. In fact,

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Speaker 2: they said three point twenty five percent by mid year.

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Speaker 2: They reckon. But there's an economists warning that kause Adrian

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Speaker 2: Or has left the Reserve Bank that we might see

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Speaker 2: a slightly higher track because of his departure.

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Speaker 1: Yes, now this is where it gets interesting with these

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Speaker 1: bank capital rules. Again, Adrian Or was a fierce defender

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Speaker 1: of these rules. So they're still being phased in. They'll

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Speaker 1: be fully phased in by twenty twenty eight. If what

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Speaker 1: the banks say is correct, then that mean interest rates

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Speaker 1: will be higher because of these rules. So if banks

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Speaker 1: need to hold more capital, that costs them, so they

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Speaker 1: pass that cost onto us. But if Nichola Willis comes

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Speaker 1: in and overrides the Reserve Bank or appoints a new

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Speaker 1: governor that is happy to loosen the rules. Then that

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Speaker 1: means interest rates could be a bit lower. So that means,

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Speaker 1: you know, banks might have charge us slightly less for

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Speaker 1: our mortgages. If that happens, and this is now taking

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Speaker 1: us five steps down the line. If that happens, interest

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Speaker 1: rates might end up being a bit lower than what

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Speaker 1: the Reserve Bank deems desirable to keep inflation in check.

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Speaker 1: So then it might mean that it might need to

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Speaker 1: lift the OCR a little bit more than might otherwise

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Speaker 1: be the case. I know I'm taking us like a

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Speaker 1: million steps down the road here, but but this being

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Speaker 1: z economists, Stephen Topless has said, well, if the if

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Speaker 1: the capital rules are watered down, that might mean that

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Speaker 1: o CR might need to be a little bit higher

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Speaker 1: to prevent the mortgage rates that that banks charge from

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Speaker 1: from falling too low. You know, if they fall too low,

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Speaker 1: that can stimulate the economy and that could be inflationary.

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Speaker 1: So that could mean that the o CR needs to

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Speaker 1: go up a bit. So I suppose the big takeaway here,

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Speaker 1: and it's all very complicated, but these capital rules are

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Speaker 1: worth are worth a lot. You know these the way

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Speaker 1: that banks are regulated, you know that has a really

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Speaker 1: big impact through the economy, and I think the IMF

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Speaker 1: is also warning we need we can't tinkle with these

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Speaker 1: things willingly. You know that there needs to be a

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Speaker 1: pretty you know, a good effort to make sure they

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Speaker 1: are well calibrated because the flow and effects are.

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Speaker 2: Extensive, massive, and it's basically a battle between stability and

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Speaker 2: I yes, cost effectiveness too, isn't it. Janet, thank you

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Speaker 2: very much for that. There's always genative training with us

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Speaker 2: from the Herald. She's the Marlington Business Editor. For more

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Speaker 2: from Heather Duplessy Allen Drive, listen live to news talks.

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