Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Low-equity loan limits worth one or two rate hikes: RBNZ

Low-equity loan limits worth one or two rate hikes, says RBNZ’s Spencer

By Paul McBeth

March 27 (BusinessDesk) - The Reserve Bank’s speed limits on low-equity mortgage lending helped stifle inflationary pressures by an amount similar to one or two interest rate hikes and may have taken pressure off the high value of the kiwi dollar, according to deputy governor Grant Spencer.

Speaking at the Credit Suisse Asian Investment Conference in Hong Kong, Spencer said monetary and macro-prudential policies have separate primary objectives, though there is a case for coordinating their use to meet both goals.

In the case of New Zealand, where house price inflation accelerated through much of last year, imposing limits on high loan-to-value ratio lending meant the Reserve Bank wouldn’t make an already elevated currency more attractive by increasing interest rates.

This had been an “important consideration in our monetary policy assessment,” even though LVR’s are aimed at financial system stability rather than monetary conditions, Spencer said.

“The dampening effect of LVRs on house price inflation and credit is expected to reduce wealth and credit effects on consumption that might have otherwise increased due to a rapid expansion in house prices,” he said. “This, in turn, is estimated to have reduced CPI (consumers price index) inflation pressures by an amount similar to 25 to 50 basis point increase in the OCR (official cash rate).”

The bank has previously estimated the impact of the LVR restrictions as similar to about 30 basis points of interest rate increases.

New Zealand’s central bank embarked on a policy of raising interest rates this month, raising the OCR 25 basis points to 2.75 percent, as it looks to tame the threat of future inflation as the local economic momentum gathers speed. A string of increases of between 25 and 50 basis points is expected over the next couple of years as stimulus provided by low interest rates is gradually removed while the economy recovers.

Had the LVR restrictions not been in place, “the tightening cycle might have needed to be more accentuated,” Spencer said. “While the main benefit of the LCRs has been to redress the impact of the easier lending conditions, they may also have helped to take some pressure of the New Zealand dollar exchange rate.”

The kiwi dollar rose to a new post-float high 80.48 on a trade-weighted basis today, above its previous high point last week. The local currency has been in favour among international investors due to the strong economic growth prospects, and track for rising interest rates.

Spencer said the current monetary policy tightening is motivated to keep inflation near the 2 percent mid-point of the central bank’s 1 percent to 3 percent target band, though it might have spill-over effects in helping financial stability if it helps reduce the pace of house price inflation.

The bank estimates the loan limits have reduced annual house price inflation by 2.1 percent since September, with a 13 percent drop in monthly house sales.

Spencer said the restrictions will be removed once house market pressures have moderated, and the bank is confident there won’t be another bout of rapid house price inflation.

“A decision to ease or remove LVR restrictions will ultimately take into account both the financial stability and price stability implications of doing so,” he said. “We will be alert that the removal of LVR restrictions could produce a resurgence in house price inflation, which would potentially undermine both financial and price stability.”

(BusinessDesk)


© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Forestry: Man Charged After 2013 Death

Levin Police have arrested and charged a man with manslaughter in relation to the death of Lincoln Kidd who was killed during a tree felling operation on 19 December 2013. More>>

ALSO:

Smells Like Justice: Dairy Company Fined Over Odour

Dairy company fined over odour Dairy supply company Open Country Dairy Limited has been convicted and fined more than $35,000 for discharging objectionable odour from its Waharoa factory at the time of last year’s ”spring flush” when milk supply was high. More>>

Scoop Business: Dairy Product Prices Decline To Lowest Since July 2012

Dairy product prices dropped to the lowest level since July 2012 in the latest GlobalDairyTrade auction, led by a slump in rennet casein and butter milk powder. More>>

ALSO:

SOE Results: TVNZ Lifts Annual Profit 25% On Flat Ad Revenue, Quits Igloo

Television New Zealand, the state-owned broadcaster, lifted annual profit 25 percent, ahead of forecast and despite a dip in advertising revenue, while quitting its stake in the pay-TV Igloo joint venture with Sky Network Television. More>>

ALSO:

Insurers Up For More Payouts: Chch Property Investor Wins Policy Appeal In Supreme Court

Ridgecrest NZ, a property investor, has won an appeal in the Supreme Court over insurance cover provided by IAG New Zealand for a Christchurch building damaged in four successive earthquakes. More>>

ALSO:

Other Cases:

Royal Society: Review Finds Community Water Fluoridation Safe And Effective

A review of the scientific evidence for and against the efficacy and safety of fluoridation of public water supplies has found that the levels of fluoridation used in New Zealand create no health risks and provide protection against tooth decay. More>>

ALSO:

Scoop Business: Croxley Calls Time On NZ Production In Face Of Cheap Imports

Croxley Stationery, whose stationery brands include Olympic, Warwick and Collins, plans to cease manufacturing in New Zealand because it has struggled to compete with lower-cost imports in a market where the printed word is giving way to electronic communications. More>>

ALSO:

Prefu Roundup: Forecasts Revised, Surplus Intact

The National government heads into the election with its Budget surplus target broadly intact, delivering a set of economic and fiscal forecasts marginally revised from May to reflect weaker commodity prices and a lower tax take. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news