The Reserve Bank of New Zealand followed the lead of the world's major central banks yesterday, not in cutting its interest-driving official cash rate, but in offering a temporary lending facility to banks which has no ceiling for approved applicants.
The Reserve Bank also remains working on a separate proposal to offer asset-backed securities to a wider range of financial institutions in the future.
However, in the wake of unprecedented global interest rate cuts of around 1% by six of eight major central banks overnight, to free up cash and soothe panicked investors, employment of the facility was largely ignored as volatility resumed in the world's sharemarkets.
After huge European losses and more decline in United States markets overnight, the New Zealand share- market traded flat yesterday and ended down 0.13% at 5pm.
On opening late yesterday, the Asian markets were generally buoyant, with the five major bourses up on average more than 2% between them.
However, in Australia, heading toward its close, the broader All Ords was down 0.8% and the Standard and Poor's 200 down 0.5% ABN Amro Craigs broker Peter McIntyre said the Reserve Bank announcement had no effect on market activity, other than generally giving some confidence to the market place to which it was talking and keeping a watching brief on overseas developments.
Last week's $US700 billion ($NZ1.08 trillion) Wall Street bail-out package and a separate private business lending programme each had a brief calming effect on markets, before massive volatility resumed, the panic spreading in recent days to European markets.
Hours before the global central bank rate cut announcement, the British Government and the Bank of England approved a total 300 billion ($NZ850 billion) in a bail-out programme of recapitalisation and bank guarantees.
The New Zealand sharemarket has weathered the storm better than most, but the US markets alone are estimated to have shed $US2 trillion in value during the past six days' trading and the loss of more than 15% of share values.
After 48 hours of New Zealand market speculation the Reserve Bank would announce a surprise cut to the official cash rate (OCR), and following Tuesday's shock 1% cut by the Reserve Bank of Australia, RBNZ governor Alan Bollard announced the lending facility yesterday.
"New Zealand banks have high-quality assets.
Fortunately, they do not have the poor-quality assets that have proved so damaging overseas," he said in a statement.
To improve New Zealand banks' liquidity prospects, the Reserve Bank would "temporarily broaden its security programme" and if required would lend fully-secured Residential Mortgage-Backed Securities (RMBS) before they achieved formal ratings.
RMBS are tradeable securities backed by mortgages on residential or home-equity loans, but not on commercial developments.
ANZ chief economist Cameron Bagrie said the RMBS facility was a "prudent move" by Dr Bollard, as the facility was only available with collateral of quality assets.
"It's relatively minor in comparison to the US and Euro-zone [bail-outs and lending programmes], but New Zealand had been caught in the rip [tide] of the US and European problems," Mr Bagrie said.
He "fully expected" a full 100 basis points, or 1% cut to the OCR on the scheduled October 23 announcement date from 7.5% to 6.5%.
BNZ chief economist Stephen Toplis said people were confused by the multibillion dollar US and British bail-out measures and what the global interest rate cuts can achieve.
The bail-outs are to provide an immediate "circuit breaker" to what is "effectively a form of market failure", while the interest rate cuts reflected central banks' moves to support medium-term growth expectations, which are flagging.
Volatility in the New Zealand dollar continued unabated yesterday, after it fell to a low of US57c overnight on Wednesday; resumed trading around US61c yesterday and at 5pm yesterday was at $US60.94c.
Gold, which had surprisingly shifted little in price during the past week's panic, lifted more than 5% to more than $US900 yesterday as investors sought historical havens.
Oil fell below $US88, down $US60 on the record $US147 struck in July, on prospects of waning demand from global recession.
