5 This is because equity capital not only reduces the risk of a bank running into financial distress in the first place – the improvement in credit quality also minimises the danger of a bank failure still further, which, all other things being equal, tends to dampen that bank’s funding costs.
While the lower NZD will eventually lead to higher inflation, this will be tempered by lower global import prices and a narrowing in firms’ margins to reflect the current demand climate. The prevalence of discounting and reports of high retail stocks suggest some temporary respite for retail prices from the lower dollar.