RBNZ eyeing more macroprudential tools

Bernard Hickey
New Zealand Finance Minister Bill English, who has to be consulted by the Reserve Bank of New Zealand on any new macroprudential policy moves, says the bank is building its case for new measures to control Auckland's house price inflation.

Speaking less than a week after a carefully worded speech by RBNZ governor Graeme Wheeler that warned about a possible housing market correction, English said he agreed a correction was possible and supported the bank's role in safeguarding financial stability.

English told Banking Day that Wheeler's speech was part of the RBNZ's process of building its case for new measures.

Wheeler did not specify any new macroprudential action on top of the existing high LVR speed limit in the speech, but said the central bank was monitoring the role of banks in the recent resurgence in house price inflation.

English said Auckland's housing market could not continue to grow at double-digit rates, as it has been growing in the past three months. Auckland annual house price inflation rose over 11 per cent in January and spiked to 15 per cent in the most supply-constrained market of South Auckland.

"It's been going up at double digit rates and that clearly can't go on forever," English told Banking Day, while speaking to reporters before the National Party's caucus meeting.

"The Reserve Bank has responsibility for financial stability so they are always concerned about situations where it looks like people are borrowing quite a lot of money against an asset value that could change," he said.

English said the RBNZ had talked publicly about asking banks to hold more capital for investors with more than five properties, but he had not seen any more than that.

"They've got a bit of a dilemma here where [there's a] very low interest rate environment, there's no good reason to put interest rates up, they don't really have that tool to enable them to control the housing market so, two or three years ago, we put together the macro-prudential framework and that's available to them, and it's up to them to decide how to use it," he said.

Asked if the Reserve Bank should use those extra tools, he said: "I think they are making judgements as they go. The situation now is a bit different than even four or five months ago, the rate of housing inflation's picked up again despite the LVRs. Where they might have been expecting to put interest rates up two or three months ago it now looks as though it will be flat for a while, so it's up to the Bank to try and make those balances."

English said the RBNZ's primary responsibility was around financial stability, "because we know what happens when housing markets get way out of control and crash."

"So we support the Bank following its legislative mandate, paying attention to financial stability, taking the measures they believe are required," he said.

"And bear in mind, they will take action if they think there is significant pressure building up. They are not just going to take action because they might not like what they see. They'd need to make a case that there is a threat to financial stability," he said.

Asked by Banking Day if they were making that case, he said: "Well, I think the governor's speech last week started to make that case."