Reserve Bank would close down if birdflu hits

The Reserve Bank will close its headquarters in Wellington and staff work from home if birdflu under a "Code Red" scenario -- human-to-human transmission in New Zealand.

"Health experts consider than an influenza pandemic is not a case of 'if' but 'when'," bank deputy governor Adrian Orr said in briefing papers to bank chief executives last week obtained by NZPA.

"Economic disruption would be substantial," Mr Orr said in the papers obtained released under the Official Information Act.

Under the worst-case scenario of a full scale pandemic, the central bank would close its doors and staff would operate from home.

The bank has already begun enacting plans to increase the amount of money in its vaults to counter panic hording.

Normally, a quarter of the money in circulation is held in the vault, but this is being increased to 70 per cent -- or about $1350 per household.

"In times of crises, history shows that there is a significant rise in demand for currency," the confidential briefing papers state.

Plans were in place for staff to remotely operate critical functions such as setting the cash interest rate, ensuring liquidity, "and to monitor markets and intervene should that be required".

Bank Governor Alan Bollard, at a news conference today on the bank's six monthly report into financial stability of the banking system, said that while the bank would try to ensure the system was a resilient as possible: "There are no guarantees on this".

"We have discussed this with banks around the Australian-East Asian region and I am convinced that we're as ready as any of them."

He refused to discuss monetary policy responses to a potential crisis.

Economists believe the bank would be forced to heavily cut interest rates -- by one or two percentage points -- to ease economic pressures.

The bank's briefing papers state that a pandemic "will occur over a lengthy period i.e. in waves of 8 weeks over a period of 6-12 months".

But at today's news conference, Dr Bollard tried to play down the likely effects.

"We are not portraying that as the major threat to financial stability," he said.

"We think the prospects of the economy coming to a virtual standstill are extremely unlikely."

Mr Orr said that, generally, risks to the financial system were increasing and the road ahead was "potentially rockier".

While the financial system was well placed to weather a slowdown, households were vulnerable because of high debt levels as was the country because the current account deficit was running at 8 per cent of GDP.

Today's report said even if a birdflu outbreak did not spread to New Zealand, international trade and travel could be severely disrupted -- at many times the scale caused by Sars in 2003.

"The economic impact could be more severe should an outbreak occur while New Zealand's current account deficit remains as large as it is at present," it stated.

Financial markets would come under stress and their resilience tested.

Mr Orr said that if birdflu coincided with the expected cyclical slowdown, "then potentially there would be some very dramatic price shifts".

That suggests a possible very sharp fall in the exchange rate.

The bank is holding foreign reserves in case markets "became disorderly".

'We would be playing an important role in terms of price making," Mr Orr said.

Mr Orr declined to comment on whether private sector banks were ready should the a flu outbreak occur tomorrow.

"We are getting ourselves into a position where we feel confident the core infrastructure could go (work), but there is plenty of work left to be done with the banks around how they would be working with customers."

The Reserve Bank is issuing staff with face masks, gloves, tissues, handwash liquid and paracetamol.

- NZPA