New Zealand's capital market at a critical juncture

On International Women’s Day – 8 March – KangaNews once again hosted leaders from the New Zealand capital market at a wide-ranging roundtable discussion. The conversation covered the challenging phase in which markets and the economy find themselves as well as the intersection with diversity and inclusion, and the future of work.

PARTICIPANTS
  • Rachel Coates Wellington Chair INFINZ YOUNG WOMEN IN FINANCE
  • Fiona Doddrell Director, Debt Capital Markets and Syndicate WESTPAC
  • Philippa Fourbet General Manager, Markets BNZ
  • Kim Martin Head of New Zealand Debt Management THE TREASURY
  • Sarah Minhinnick General Manager, Capital Markets Origination NZX
  • Carolyn Ng Head of Debt Capital Markets ANZ
  • Kate Le Quesne Manager, Portfolio Management RERSEVE BANK OF NEW ZEALAND
  • Vanessa Rayner Director of Financial Markets RERSEVE BANK OF NEW ZEALAND
  • Nicki Reeves Liquidity and Investor Relations Manager KAINGA ORA – HOMES AND COMMUNITIES
MODERATORS
  • Laurence Davison Head of Content KANGANEWS
  • Samantha Swiss Chief Executive KANGANEWS
INFLATION OUTCOMES

Davison New Zealand was at the forefront of one of the biggest capital markets talking points in 2021: whether inflation would be transitory or persistent. It seems the Reserve Bank of New Zealand (RBNZ) and market participants are now working on the basis that elevated inflation will be a feature of the economy for some time, but is the debate conclusively settled? Is there still a possibility that improved global supply-chain conditions could allow inflation to ease?

RAYNER Unfortunately the debate is never conclusively settled when we are talking about future economic outcomes and the inflation environment. We can look to recent drivers to provide an indication of what might happen, though. As we outlined in our February monetary policy statement (MPS), there are global and domestic factors at play.

Globally, we have seen strong demand for goods pushing up against supply challenges caused by pandemic-related restrictions as well as shipping disruptions. These have had an impact on the price of commodities and other goods and services we import to New Zealand.

Overlaying the global backdrop are important domestic factors. The New Zealand economy has recovered impressively from COVID-19 disruptions, supported by fiscal and monetary policy responses and the resilience of New Zealand households and businesses. Strong domestic demand is putting pressure on the available resources in the economy, which is resulting in higher inflation – for example in the construction industry, where the cost of building is rising at a rapid rate.

Key reasons for the tightening of monetary policy are to help restore domestic demand and supply to balance and to ensure that higher inflation does not become entrenched in future inflation expectations.

Since the most recent MPS, there have obviously been significant developments globally with the war in Ukraine, which is having implications on markets and commodity prices. We will continue to assess the economic and inflation outlooks.

"We would be concerned if wages were persistently growing slowly relative to the cost of living. This may be a signal of labour-market weakness and it could also indicate we are not meeting our mandate when it comes to maximum sustainable employment. This is not the case at the moment, however – we have a very strong labour market."

Davison Kainga Ora – Homes and Communities has a first-hand view of the inflation state of play. How are rising costs of shipping and materials affecting housing construction?

REEVES It is no surprise that we have seen short supply and higher costs of materials, with an obvious knock-on effect to our building partners. We have been focused on addressing these challenges for some time. We are working with our supply-chain partners to ensure we forecast demand as far in advance as possible, while doing what we can to ensure continued supply of materials and products. Our advice to our build partners is to plan ahead and place orders when they can.

We have therefore introduced new measures into our contracts to help our build partners manage cost fluctuations. We have recently amended the existing COVID-19 variation clause in our build contracts to provide a more consistent approach to dealing with cost fluctuations that are a direct result of COVID-19.

The aim is to make it easier for our build partners to claim on cost fluctuations so they can focus on completing projects, thereby helping us meet the growing demand for housing in New Zealand.

Davison Is Kainga Ora seeing even more pressure on public housing as the cost of living has risen but wages have not?

REEVES It is an interesting question. There is clearly a shortage of public and private housing and there was pre-existing pressure on the wait list. On the other hand, we know that for people on low or fixed incomes housing costs are absorbing more of their disposable income. Naturally, higher cost of living will have an even greater financial impact. We offer wraparound services for our customers to help with budgeting for those that are feeling the pinch and stress of higher living costs.

We are trying to build as many houses as we can to reduce the wait list. These new homes are also designed to be energy efficient, with the knock-on effect of reducing tenants’ operational running costs and boosting disposable income. For example, we are undertaking a project in Auckland with the key customer outcome to achieve an electricity bill of around NZ$1 (US$0.69) per day.

We consider urban design as part of the design of a new development, for example easy access to local transport links. This means our customers can choose between running a car, which can be expensive – and costs are clearly rising – or taking the bus or train. These initiatives seek to ease the pressure and help support tenants financially as part of new developments.

Davison What would be more of a concern from an economic and market perspective: wages increasing to match inflation expectations – potentially locking in higher inflation for an extended period – or wages continuing to trail inflation thereby causing cost of living and inequity pressures in the economy?

RAYNER We would be concerned if we started to see a so called wage-price spiral, whereby higher prices result in demands for higher wages and this in turn results in higher prices. This spiral can be very dangerous and have significant impacts on household and business decisions now and into the future. This is a key reason we are tightening policy in the current environment.

On the other hand, we would be concerned if wages were persistently growing slowly relative to the cost of living. This may be a signal of labour-market weakness and it could also indicate we are not meeting our mandate when it comes to maximum sustainable employment. This is not the case at the moment, however – we have a very strong labour market.

The last thing to note is that real wages – nominal wages adjusted for inflation – depend on productivity growth over the long run. This is driven by investment, innovation and other policies outside the scope of monetary policy, which is a demand-management tool.

FOURBET Real wage pressure is having an impact on people’s ability to afford housing, which is clearly one of the biggest problems in New Zealand at the moment. Affordability requires such an elevated level of income that it will be very difficult to alleviate this issue even with very large real wage growth.

DODDRELL We are mainly seeing wage inflation in the skilled and in-demand sectors. However, with unemployment at 3.2 per cent and going lower, one would expect some form of wage inflation to continue to come through. Solving for prolonged inflation and inequity is challenging and there is no perfect answer. However, as Vanessa Rayner has highlighted, the reserve bank is strongly focused on this and is currently in a tightening cycle in order to try to ensure inflation does not become embedded.

“Real wage pressure is having an impact on people’s ability to afford housing, which is clearly one of the biggest problems in New Zealand at the moment. Affordability requires such an elevated level of income that it will be very difficult to alleviate this issue even with very large real wage growth.”

Sustainable debt gains traction

Last year saw key breakthroughs in the adoption of sustainable finance in the New Zealand debt market, including the proliferation of the sustainability-linked loan (SLL) product and New Zealand Debt Management’s announcement of plans to issue green bonds.

SWISS Following last year’s developments, where does New Zealand rank compared with its global peers when it comes to the uptake of sustainable finance?

LE QUESNE There have been several positive developments across the market and assets have grown significantly.

On the supply side, borrowers are eager to show commitment through their ESG [environmental, social and governance] credentials, while investors are also seeking to demonstrate their commitment to ESG principles and to show impact through their investing. While the New Zealand market may not have developed as far or as fast as some of its peers, it is not too far behind.

We have seen the four major banks in Australia and New Zealand declare targets for their green lending portfolios. These targets will likely boost supply of green loans and, over time, lead to more competitive pricing in this space – and potentially green residential mortgage-backed securities.

Then there is the green sovereign issuance expected this year, which is a watershed moment for the New Zealand market. So far, green issuance has been relatively concentrated among just a few issuers. But we think the range of issuers accessing the market is likely to grow, particularly with the New Zealand Debt Management green bond paving the way.

We acknowledge the quantity of work going on behind the scenes and it is good to see issuers taking time to develop frameworks and strategies, and the compliance that sits behind them to ensure they are fit for purpose.

NIKKI REEVES

We are considering SLBs. The product has highlighted to us that the entire organisation needs to come along for the journey, for the reporting and data infrastructure. as an institution, we began sustainability reporting three years ago and in the last year we have fully established our sustainability team. It is a journey, and it is a marathon not a sprint.

NIKKI REEVES KAINGA ORA - HOMES AND COMMUNITIES
CAPITAL MARKET IMPLICATIONS

Davison How is the inflationary environment influencing the New Zealand capital market?

DODDRELL Putting aside geopolitical volatility for the moment, we are seeing increased interest from retail investors because we are in a rising rates environment. Recent bond transactions tell us these investors are prepared to dip their toes back in the water at around 4 per cent coupon.

To a certain extent it is helpful that the reserve bank is seen to be well ahead of its global peers in normalising monetary policy. The hiking cycle being well progressed is allaying mark-to-market investor concerns about capital losses, which is a further factor supporting capital markets despite a geopolitical backdrop that has not been particularly conducive for primary transactions.

NG The New Zealand retail bid has remained reasonably resilient over the years, and it feels particularly robust given the rising rates environment. It is helpful in supporting primary and secondary market activity. We have not seen this level of inflation for quite some time and, coupled with geopolitical concerns, the increased volatility has made deal execution a key consideration.

“It is helpful that the reserve bank is seen to be well ahead of its global peers in normalising monetary policy. The hiking cycle being well progressed is allaying mark-to-market investor concerns about capital losses, which is a further factor supporting capital markets.”

FIONA DODDRELL WESTPAC

Davison What could higher headline yield mean for demand for New Zealand rates and credit product?

NG We are heading into new territory for many investors. But the credit market has been relatively active in recent weeks and we expect this to continue. We have not observed any investors move away from the market, albeit some are keeping more of a watching brief.

The hiking path means we are still getting negative real rates of return at the moment, though. Investors will be conscious of adding duration as this dynamic plays out. It appears the demand sweet spot has shifted toward the mid-curve for many.

MINHINNICK There was a downward trajectory in rates ahead of the pandemic and then – hugely exacerbated by the pandemic – we saw investors rebalancing into equities from fixed interest as they moved up the risk curve to seek yield. Now we are in a rising rate environment, we are starting to see some flows the other way as the bond yield floor starts to become more acceptable for retail investors.

Demographics are also at play. During the two years of the pandemic we have seen the greatest re-engagement with the equity market of our generation, and probably since the 1987 crash. This means many investors may not have been through a down cycle before. It will be interesting to see how these investors continue to engage with the market as we go through the very complex environment we are navigating now.

I believe investors will continue to take advantage of a range of opportunities on market – because one thing that is very clear to investors in this inflationary environment is that they cannot save to get to their goals. They have to invest their way to their goals. This means being smart in how they allocate, diversify and stay invested in the market, even if the situation right now is not ideal.
We always used to say New Zealand investors ate their coupons: for a lot of older or retired people this was their grocery or day-to-day living money. There are a lot of good things to be said for rising rates in this context.

LE QUESNE As monetary stimulus is withdrawn it is reasonable to expect some rebalancing toward fixed income, including New Zealand government bonds (NZGBs) and credit, as an unwind of the portfolio rebalancing channel. We have also seen accelerating growth in KiwiSaver balances over the last few years. As these balances grow and people look toward income streams at higher yield, it will be interesting to see if there is a pickup in demand for bread-and-butter fixed-income investments.

DODDRELL In the recent Investore Property and Genesis Energy transactions we received specific feedback that investors were looking to switch into fixed income from equities as coupons are now in excess of 4 per cent.

“During the two years of the pandemic we have seen the greatest re-engagement with the equity market of our generation. This means many investors may not have been through a down cycle before. It will be interesting to see how these investors continue to engage with the market.”

Davison It is widely acknowledged that KiwiSaver is bringing money into the institutional market. But if this is the case why is it apparently not taking money out of retail?

NG KiwiSaver is definitely coming into institutions. I think the key is to define ‘retail’, because in a lot of cases it is the same money coming through. There is, by and large, considerable crossover. There is growth in fixed income assets under management across the board thanks to the cumulative effect of money coming into KiwiSaver monthly.

DODDRELL KiwiSaver is around NZ$80 billion and is forecast to grow to NZ$200 billion in 2030. This is a key factor driving new issuers to the debt market and it is why we are seeing investors’ increased participation in the debt capital market – not just in credit but also, increasingly, in high-grade bonds.

MINHINNICK The metrics we follow give a breakdown between retail, institutional and algorithmic trading money. One might have expected a significant increase in retail money during the first and second quarters of 2020. But actually we saw all three categories rise in concert, with spikes in retail during periods of hard lockdown.

If people had time on their hands, in other words, we would see a lot of purely retail money flow into debt, equity and funds – but then it would stabilise at these quite predictable percentages.

FOURBET KiwiSaver has been a very good development for New Zealand. It did not exist 20 years ago and is forecast to reach NZ$1 trillion in 2050. It has taken savings mainstream: there are now more than two million KiwiSaver savers. We have to bear this in mind in the context of the sophistication of the retail market – it is more of a mass market now.

International investors, meanwhile, typically focus on the relativities between New Zealand yield and other major markets. The fact New Zealand has been ahead of the curve, in the sense that our yields are materially higher than offshore markets, means New Zealand is once again one of the highest-yielding sovereign markets.

This is clearly positive for offshore demand and in the six months to the end of December we saw international investors buying more or less all the NZ$15 billion of government bond supply. This volume of NZGBs is historically high and could have been significant to digest, but it proved manageable owing to the additional international demand. We have seen this flow through into demand for other high-grade issuers’ bonds.

MARTIN We have witnessed the foreign ownership proportion of NZGBs increase in recent months, to 59 per cent, while the actual dollar value is the highest level in history. The feedback we receive is that international investors are very comfortable with the New Zealand sovereign credit while yields, and OCR expectations now priced into the yields, are relatively attractive.

Davison Are New Zealand companies keen to raise capital in this environment?

MINHINNICK I think so. Last year was a big capital-raising year, right through to Christmas. There was NZ$19.8 billion raised in capital markets including 21 new bond issues. This should continue, because companies still need to push ahead with their plans despite being in a rising cost environment – they will have a requirement for capital.

FOURBET There was a big pipeline of corporate borrowers wanting to come into the market but recent geopolitical developments have halted these plans for now – and this is the case in all funding markets. It is tricky to put a timeline on the resumption but the horizon looks pretty good.

The challenge is that we have a generation of employees and clients that have not dealt with this kind of inflationary environment before – because we have not had one in 30 years. It is incredibly challenging to run our businesses and to trade in these markets, and this reality is coming home to roost on a daily basis.

MINHINNICK On the pipeline, it is true that from time to time we see pause periods around a big shock. The last one I remember was the Greek sovereign debt crisis, when companies took a while to evaluate developments.

Certainly we hope we will see a positive resolution to the Ukraine-Russia situation, not least because of the humanitarian impact. To a certain extent the market is waiting to see where things will settle but at the same time we are seeing some companies press ahead.

DODDRELL We have executed three deals in the past 7-8 days. However, we are now in a situation where issuers have to move from being opportunistic to being quite pragmatic about the backdrop in which they are operating.

I agree that we are fortunate to have the retail demand channel and, as we have demonstrated, there are opportunities to get transactions done in New Zealand. But we have to pick the right window.

Talent retention as the OE returns

New Zealand is facing a new challenge in talent retention: after more than two years living with a closed international border, young people are more keen than ever to experience life overseas. Market participants say a broader perspective and efforts to attract talent at source should help manage the impact.

DAVISON Is the fact that young New Zealanders want to go offshore to live and work a fait accompli or can employers act to keep their talent in the country?

RAYNER While I want to do my best to create a working environment that retains great talent, I am also very supportive of my staff who want to work overseas. They have worked incredibly hard during a really difficult period over the past few years, developed significantly and now they want to go overseas to broaden their horizons and grow further.

If we encourage and support our people to do this, hopefully one day they will return and make significant contributions at a later stage in their careers. There is a role for us as leaders and organisations to encourage this rather than prevent it.
On the other side of the equation, when our borders open we will be able to attract talent, too. It has been quite hard to recruit in such a tight labour market.

I am looking forward to the two-way opportunity for our people to go overseas and grow and prosper, and to offer similar opportunities to others internationally who want to come to New Zealand.

RACHEL COATES

It is great that people in the financial services environment can easily seek out role models, but it is as important to show young women that these role models are out there at the stages when they are making the decisions that will lead them on the path to being in these organisations.

RACHEL COATES INFINZ YOUNG WOMEN IN FINANCE
PANDEMIC EXIT ROUTE

Swiss I have been in Europe for the last two years and it has been interesting to observe from afar how Australia and, in particular, New Zealand have handled the pandemic. What pandemic-era changes will be stickiest, whether in the market or the way we work, and which will revert to pre-pandemic norms over time?

COATES I think far and away the most long-lasting impact the pandemic will have in New Zealand will be on flexible working arrangements. This is fantastic from a diversity point of view as it means our workplaces and employers have the opportunity better to cater to the needs of a diverse workforce.

New Zealand has had a very drawn-out experience with the pandemic. We were relatively unrestricted in 2020 when the rest of the world was locked down, but we have now not been able to travel internationally for two years. There is a large queue, especially of young people, who I think will want to undertake their overseas experiences (OEs).

I think this links into the wage inflation discussion earlier – as well as having a backlog of people who want to do their OEs, there are pull factors from countries where there has been strong wage inflation relative to a lack thereof in New Zealand. It will be interesting to see how this will influence the composition of our workforce over the next year or so.

“Flexibility is now a given. We may even reach the point where, for junior people, an employer’s selling point is that they actually have people in the office to provide support and development, and to create a sense of community.”

Swiss This reflects the way the pandemic has, it is said, put employees in the driving seat on issues such as flexible working. Is this occurring in New Zealand, and will travel have a negative impact on the ability of domestic companies to hire diverse and young talent?

COATES I think it will. We will see quite a few young people heading offshore throughout the next year especially. New Zealand businesses will have to think about what their offering is to retain diverse and young talent.

NG Flexibility will be key to keeping good people, or attracting them back after they have done their OE. The acceptance of hybrid working styles will help, with more inclusive workplaces and ways of working. This is a silver lining.

Another thing to think about – though who knows if it will stick – is that we now seem to have moved to a just-in-case from a just-in-time thought process. This may explain the toilet-paper scramble that we have seen around the world! People stock up just in case. It will be interesting to observe how and when this mentality changes, particularly given challenges to supply chains.

DODDRELL It is pleasing to see developments that came in because of COVID-19 becoming more permanent. Discussing the concept of flexibility on International Women’s Day is incredibly significant. Having flexibility is key for women trying to balance work and home life, because women are more likely to adjust their careers in order to have a family. I saw data that show 31 per cent of women decided to take a career break rather than return to the workforce not because they wanted to but because their employer could not afford them the flexibility they needed to return to work.

Career breaks can cost tens of thousands of dollars in future earnings and retirement savings. There were several stories in the media today pointing out the extent to which women typically lag in KiwiSaver savings. If we can transform this temporary concept of flexible working into a permanent one, it could solve some crucial societal issues.

Swiss Is some of this change starting to come through in hiring policies?

REEVES Kainga Ora very much supports mothers going on parental leave. During this period, we continue to add to their KiwiSaver, and their five-week annual leave and sickness leave accrues, as do wellness days, for up to 12 months. We also continue to pay medical insurance. We do this because we want to retain our talented workforce.

Concerning hiring new talent, Kainga Ora operates on a role rate system, meaning salaries are more transparent and the same for a particular role, regardless of gender. We have a very supportive chief executive, who has embraced the initiatives.

RAYNER Flexibility is non-negotiable. We have to have it in our workplaces to be able to attract and retain the best talent. The next challenge is how to manage this, as leaders, to ensure we are creating an inclusive environment where people feel a sense of belonging to an organisation and its culture. It takes effort and skill to lead through this type of change.

I have recently been reading about proximity bias, which is the potential for leaders who spend most of their time in the office to give opportunities to or build relationships with people they see face-to-face more often than staff working in different locations. It is absolutely critical, in remote or hybrid working environments, that leaders work hard to create equal opportunities for everyone no matter where they are located.

MARTIN I would go one step further and say flexibility is now a given. We may even reach the point where, for junior people, an employer’s selling point is that they actually have people in the office to provide support and development, and to create a sense of community. I think we need to be very careful not to go too far, particularly for junior people for whom a lot of learning takes place through overhearing informal conversations when they are co-located. Managing this well will be a challenge.

LE QUESNE I agree that flexibility is a part of our life now. It is fantastic for giving different demographics options, and it may keep people in the workforce in New Zealand a bit longer. What Rachel Coates described about OE is true, and this also applies to flexibility for working parents.

However, we need to be careful as flexibility can be a double-edged sword. It can be more challenging for employees to learn without the mentoring that has historically been around them. We have to be careful that we do not accidentally place additional pressure on working parents – just because they have a laptop at home there should not an expectation that they are always available to juggle work and kids.

The solution comes down to organisations and leaders being very deliberate about how they use flexible tools.

“Flexibility will be key to keeping good people, or getting them to come back after they have done their OE. The acceptance of hybrid working styles is likely to help with more inclusive workplaces and ways of working, which is a silver lining.”

REEVES I am itching to get back into the office to have more over-the-desk conversations. I am mindful of new additions to our organisation and treasury team, who will not have benefited from the rich tidbits they get when working in the office.

It is also important to support local hospitality businesses. Reconnecting relationships with internal stakeholders will be key as we get back to normal. However, this could be a challenge, as many in the workforce might actually prefer working from home. A virtual call is not the same as having an actual coffee catch-up.

MARTIN Another observation relates to access to investors. Ironically, one could make the case that over the past couple of years, when travel has not been possible, we have been on a more even playing field with our larger, global peers, as a smaller-volume issuer at the far end of the earth. When we are all in lockdown, as long as we have a few early- and late-night meetings, we have the same access to an investor in London as someone in Paris, or even the next street in London.

Now it seems issuers in Europe are starting to travel again. I am therefore turning my mind to whether the previous advantage turns into a disadvantage if we are not able to join in face-to-face meetings soon. I think everyone is now Zoom-fatigued, even though virtual platforms have served us very well.

REEVES We adapted well to virtual communication with external and internal stakeholders but it is definitely no substitute for face-to-face catch-ups, particularly when looking to diversify an investor base. It is also important for a larger New Zealand issuer in the relatively small local debt capital market to have international reach and connection. I know investors appreciate in-person meetings and we know we need to travel when we are able to make up for lost time.

We are using all forms of media to stay connected with investors, for example our annual virtual investor day, a CFO introduction video for new investors and, in future, more interactive reporting tools. It is important to keep being proactive and innovative within investor relations while solely using virtual platforms.

My view is that virtual platforms will be here for the long term – as a now-familiar cost- and time-effective tool, and from an environmental, social and governance perspective. Perhaps rather than travelling offshore for roadshows three or four times a year, we might scale this back to as little as one trip and use the virtual platform to meet investors throughout the rest of the year.

“The pandemic forced us to advance quickly with developments that otherwise would have taken many years. But I think now is the time to stop and reassess, and be very deliberate with how we manage flexible arrangements going forward.”

Swiss Are there any other pandemic-related impacts on companies’ diversity, equity and inclusion (DE&I) approaches?

NG The pandemic and climate crisis have highlighted issues. A report by World Bank says it is essential that renewable, natural and human capital are given the same importance as traditional sources of economic growth.

All the changes that have happened over the last two years have given the opportunity to think about things differently. This very much comes down to DE&I or, as someone recently suggested to me, JEDI – to include justice as well.

DODDRELL We have definitely seen a lot of positive change. However, in the broader bank quite a bit of negativity has also emerged. By way of example, in the pandemic we were told to bulk buy. However, if you are living week by week it is not possible to stock up. The little that is left on the shelves can also be expensive. What we are facing here is a lack of equality.

When we started measuring DE&I at Westpac in 2011, the concept of equality was not there. Now, however, it is very much in evidence – because it is so important. Diversity is what we measure, inclusiveness is what we strive for and equality is what we advocate for.

Banking can offer financial inclusion and confidence. It is important that we give women financial confidence so they can take appropriate risk. Lack of equality has come out of the pandemic but many of us work for large institutions, which gives us scale to disrupt and affect societal change in a positive way.

At Westpac we pay people the living wage – which is fine, but we have also extended this recently by telling our suppliers we want them to pay the living wage, too. This is where the ripple effect comes through.

MINHINNICK I think the concept of constantly evaluating how we are faring with equality is very important. I was horrified to discover that financial services have the worst gender pay gap of all industries in New Zealand at the moment. In a year, the gap has gone to 31 per cent from 23 per cent – which is very sobering. Across the financial sector we must demonstrate a commitment to equality in pay to attract talent, whether across gender or other forms of diversity.

I also hope the talent shortages we are facing now, and that we expect will get worse, will be a good nudge for businesses to hire more diverse people or hire in a more diverse way. We may be able to shift the needle if businesses are forced to change.

RAYNER There have been challenges for certain groups in our society. In the last two years there has been a disproportionate impact on job losses for youth workers, women and people in our Maori and Pasifika communities. Unemployment rates for these groups increased sharply in the first year of the pandemic – significantly more so than for others. Diversity in our workplaces would have suffered as a result.

It is pleasing to see that this has now reversed. The decline in the unemployment rate has been broad-based across ages, genders and ethnicities. For the groups of workers that were most severely affected during the pandemic, unemployment rates are now back to their lowest levels since 2000.

However, there would have been considerable hardship through income loss for these people over the past couple of years. We need to think hard about how to make labour market outcomes more resilient and equitable for all groups when we face shocks in future.

Swiss What do you think should be the focus for the years ahead in the search for a more diverse and inclusive economy and capital market?

RAYNER There are lots of opportunities on the horizon to improve the diversity and inclusion of our economic and financial landscape, and this is something the RBNZ is very passionate about.

We have several work programmes underway that aim to help with financial inclusion across New Zealand. On many of these we are working closely with other government organisations, the private sector and the public. We want to ensure our financial system is truly inclusive and allows people access to financial services so they can thrive and make the best decisions for themselves and their whanau.

One example is the collaborative work we are doing with the public and private sector to understand the barriers Maori face in accessing capital, with a particular focus on small- and medium-sized Maori businesses.

A number of factors may be constraining their ability to access finance, for example collective land ownership and lower home ownership rates. Part of this work is also to understand if there are any market failures at play and, if so, whether there are any policy and regulatory actions that could level the playing field.

Another project we have underway is work on the future of money and cash in New Zealand. This includes the design of our cash system, the RBNZ’s stewardship role and the exploration of a central bank digital currency. We are actively seeking views from the public along the way given the importance of cash in society – particularly for our most vulnerable communities.

It is important for us all to engage with a broad range of stakeholders including the public, to ensure we take these views on board when we are designing future policies, products or services that best meet the needs of all New Zealanders and improve their wellbeing.