NZ: Macroprudential tool chest set to grow and keep rates low next year - AmpGFX

RBNZ’s current macroprudential measures based on LVR restrictions appears to be working, which is likely to keep rate expectations in New Zealand stable, explains the analysis team at Amplifying Global FX Capital.

Key Quotes

“Looking ahead we see downside risk for the NZD.  The RBNZ has been working for some time to get the government over the line to introduce another tool for controlling the housing market (setting limits on debt-to-income ratios for borrowers).  It has conducted a cost-benefit analysis for the government, has presented a consultative paper and is seeking submissions from the private sector by 18 August.”

“Its current macroprudential measures based on LVR restrictions appears to be working, and there are no immediate plans to introduce DTI limits, but the market should be aware that the RBNZ is likely to be able to deploy such measures sometime next year.  This is likely to keep rate expectations in New Zealand stable.”

“Political risk to build

There is a national election on 23 September.  As yet it does not appear that the market is considering the risk of the populist NZ First party holding the balance of power between the left and right of politics, and a change of government, or less stable governing coalition.  As the election draws nearer, the NZD may begin to under-perform.”