From the National Business Review (NBR) comes the rumour that the Reserve Bank of New Zealand (RBNZ) will bolster its macro-prudential arsenal to curb Auckland’s resurgent housing market:
The central bank will release its latest six-monthly financial stability report on Wednesday and could either extend its current loan-to-valuation ratio (LVR) restrictions or adopt other tools, such as lending limits based on borrowers’ incomes.
Adding pressure on the Reserve Bank was last week’s surprise move by Australia’s central bank to cut its cash rate to a record low 1.75% in the wake of much lower than expected inflation data, the same problem New Zealand has.
New Zealand financial markets are now pricing in an 82% chance of a rate cut in June, up from 58% a week earlier.
“The Reserve Bank is caught between a rock and a hard place, having been forced into more interest rate cuts in the face of very low inflation, a strong currency and ongoing easing policies from other central banks,” Craigs Investment Partners’ head of wealth research, Mark Lister says.
“However, they will be very uncomfortable with how these low interest rates are fuelling the housing market further,’ Mr Lister says.
If enacted, these macro-prudential curbs would follow the following actions by the RBNZ:
- The introduction of the loan-to-value ratio (LVR) ‘speed limit’ in October 2013, whereby all banks were limited to committing no more than 10% of their new lending to mortgages exceeding 80% of the value of the property being bought.
- The introduction of new rules from 1 November 2015 requiring Auckland residential investor loans to have a LVR of no more than 70%. Banks were also required to put residential property investment loans in a separate asset class and hold more capital against them.
