Karen Silk: Building a balance sheet to support financial stability

Speech by Ms Karen Silk, Assistant Governor and General Manager for Economics, Financial Markets and Banking of the Reserve Bank of New Zealand, to the UBS Australasia Conference, Sydney, 14 November 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

E ngā mana, e ngā reo. E ngā karanga maha o te wā.

Tēnā koutou, tēnā koutou, tēnā koutou katoa,

Good morning. It's wonderful to be here in Sydney representing Te Pūtea Matua, the Reserve Bank of New Zealand. I want to thank UBS for hosting this event and for inviting me to speak.

As an Assistant Governor with responsibility for financial markets, I spend a fair amount of time thinking about the RBNZ's balance sheet, its size, composition and the risks associated with it – and that is what I would like to talk about today. This speech might be considered the third in a trilogy on the RBNZ's balance sheet, following on from Christian Hawkesby's in 2020 and Vanessa  Rayner's in 2021.

Central bank balance sheets are garnering significant interest these days, which is understandable given their growth in size. With increases in size largely due to their use as tools of monetary policy post GFC, any change in central banks' balance sheets are commonly viewed as either a form of monetary easing or "quantitative tightening".

It is correct that a central bank's balance sheet is an instrument of policy, not an instrument of profit and therefore any time there is a change in the size or composition of the balance sheet, it will be in support of policy. When we consider policy, however, this includes financial stability and is not the exclusive domain of monetary policy.

Today my focus will be on the RBNZ's balance sheet as a tool to support financial stability and I will outline some of the recent steps we've taken to strengthen the RBNZ's balance sheet for that purpose. In particular in the area of foreign reserves.