From Banking Day:
Reserve Bank of New Zealand governor Graeme Wheeler has talked up the bank’s macro-prudential policies to a Bank For International Settlements conference in Wellington.
…He said house prices had risen rapidly in several Asia-Pacific countries in recent years, including Australia.
“Strong housing demand can add to financial stability risks, especially when accompanied by high household indebtedness. Housing market exuberance can be particularly problematic when interest rate responses are not warranted because economic growth is well below potential, and inflation in factor and product markets is benign,” Wheeler said.
“Macro-prudential policies can be helpful in addressing financial stability concerns in such circumstances. But the introduction of macro-prudential policy requires policy makers to be clear about its goals, the duration of the measures, and how such measures might interact with monetary policy,” he said.
…”We believe the dampening impact of LVRs on house price inflation and credit, and the diminished ‘wealth effects’ on spending associated with it, have reduced consumer price inflation pressures by an amount similar to a 25-50 basis point increase in the OCR,” he said.
“In essence, the reduction in housing pressures allowed us to delay the tightening in interest rates, thereby reducing the incentive for any additional capital inflows into the New Zealand dollar in search of higher yields.”
Exactly, and here’s the proof. Statistics released by the RBNZ show that the share of high LVR lending plummeted following the introduction of the LVR cap, falling from 25% in the months proceeding the change to just 5.4% (before exemptions) and 4.3% (after exemptions) as at April 2014:
