N.Z. Central Bank Takes Steps to Ease Liquidity

By Tracy Withers

Sept. 19 (Bloomberg) -- The Reserve Bank of New Zealand will now accept bank bills in its daily market operations to ease pressure on liquidity in the financial system.

Local banks' borrowing costs rose to the highest since March, according to a gauge that measures the availability of funds in the market. The central bank will also offer longer terms of up to six months in its operations ``in order to help ease pressure at the short end of the market,'' according to a statement released in Wellington today.

Policy makers globally are trying to revive confidence in markets as investors stockpiled money on concern more financial institutions would fail after the bankruptcy of Lehman Brothers Holdings Inc. and the U.S. government bailout of American International Group Inc this week. The world's biggest central banks joined forces to pump $180 billion into money markets yesterday to ease the credit squeeze.

New Zealand ``will inevitably feel the effects of major financial shocks such as this,'' Reserve Bank Governor Alan Bollard said in the statement. ``There are indirect adverse effects on liquidity in New Zealand's financial markets.''

The difference between the rate banks charge each other for three-month loans and the overnight indexed swap rate widened to at 62.5 basis points, or 0.625 percentage point, at 1:31 p.m. in Wellington, from 60.5 points yesterday, Bloomberg data show. The median spread was 40 points over the past 12 months.

``There is no immediate problem,'' Bollard said. ``The Reserve Bank always stands ready to support the liquidity of the New Zealand financial system.''

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.