Bollard warns against "defeatism"; says "don't pull down the shutters"

Reserve Bank Governor Alan Bollard has warned New Zealanders against "defeatism" and has called on consumers, businesses and bankers not to "pull down the shutters." Bollard told the Canterbury Employers' Chamber of Commerce the economy was in the middle of a major international shock that was developing from financial turbulence into economic recession. "Households, firms and banks will naturally be very cautious during this process. However, we should also be watchful for the opportunities, and mindful of the risks of defeatism. Within the Western world, New Zealand's economy and financial system are relatively well-placed to weather the adjustment," Bollard said in the speech. Bollard said past recoveries had occurred suddenly and strongly, and New Zealand needed to remain well-positioned for such a recovery. "This has been New Zealand's experience in the past. Households and firms should not pull down the shutters, and banks should continue to lend on sound business propositions," he said. Bollard said large underlying structural adjustments are underway internationally. The process of readjustment could be very rocky for exposed players, with real economic costs, he said. "The debt build-up will take years to prune back to sustainable and prudent levels," he said. "We have not escaped the impact of the massive international credit crunch. In our case, the tightening has exposed vulnerabilities associated with household and external indebtedness, and how this debt is funded. The global recession is also now affecting us through trade channels and a slump in world commodity prices." New Zealand's policy responses have probably been about as successful as might be expected, Bollard said. "We have eased monetary policy substantially and very rapidly. Inflation remains under control, following the largest international commodity and asset price surge for decades. We greatly expanded our liquidity facilities. Cash continues to circulate, despite enormous pressure to hoard it," he said. "Our banking system remains well-capitalised and has avoided the problematic credit exposures that have brought some major overseas financial institutions to their knees." Here is a link to the paper for the speech by Alan Bollard.