RBNZ: Macroprudential measures working - AmpGFX

In view of the analysts at Amplifying Global FX Capital, the subdued RBNZ view on inflation does depend on a continuation of the recent significant moderation in house price growth which in part reflects the impact of the expanded LVR limits on loan growth, and some tightening in bank lending conditions in part directly related to the macroprudential framework.

Key Quotes

“Wheeler said that New Zealand banks had tightened credit for some developers, more so the lesser established ones, and had cut back lending to property investors. (These are most affected by the LVR restrictions).   Wheeler noted that the value of new loan commitments was down 9% in Q1 from a year earlier, down 21% for investors, and flat for others.”

“Wheeler noted that mortgage rates had risen from last year due in part to higher funding costs.  He said, some banks are approaching their internally set limits on offshore wholesale borrowing, leading to increased competition for deposits, and an increase in deposit rates.  He said that he expects that competition for deposits to “continue quite significantly in coming months.”

“With rapid immigration and a tight housing market, there is clearly a risk that the LVR restrictions lose impact and house price growth picks up again later in the year. Should house price start to reaccelerate, the RBNZ is still readying new measures (Debt to Income – DTI limits) to deploy next.”

“RBA Governor Wheeler Said, “We expect to be going out with a consultative document in the next 2 to 4 weeks about DTIs.”

“This will include the cost-benefit analysis requested by the government, we’ve largely completed the draft, and discussing it with Treasury, we’ll give it to the Finance Minister, he will look at it for a couple of weeks, and then we will put it out.”

“Presumably, this paper will help contain bank enthusiasm for lending.  The RBNZ does not expect to immediately implement this policy, and even after this first consultative paper is released, a second more detailed policy proposal consultative paper would need to be prepared.

RBNZ Deputy Governor Spencer said, “It would still be some way off, I would not put an exact time on it.”

“The RBNZ’s macroprudential policies have been working and allow them to maintain record low interest rates.  It may feel the addition on DTI limits to its toolkit, late this year or sometime next year will allow them to hold rates low for some time yet.”