WELLINGTON (Reuters) – New Zealand’s central bank said Wednesday it will reimpose mortgage restrictions next year and is working with the government to fix the housing crisis, reinforcing the view that deeper interest-rate cuts into negative territory are now unlikely.
The government on Tuesday sent a letter to the Reserve Bank of New Zealand (RBNZ) asking it to consider factoring property prices as part of its policy amid widespread concerns about housing affordability.
RBNZ governor Adrian Orr said the central bank would consider the government’s proposal but needed to assess the impact of such changes on its goal of maintaining financial stability.
“We intend to work with the government in a prompt, constructive and open manner in assessing long-term solutions to housing affordability,” Orr told a news conference.
His comments came when the RBNZ announced plans to reimpose mortgage lending restrictions, called loan-to-value (LVR) restrictions, in March next year.
New Zealand bounced back sooner than expected from recession, but house prices have hit new highs prompting a government proposal to the central bank to include house prices in its monetary policy jurisdiction.
The New Zealand dollar surged to its highest level since mid-2018 on Tuesday, as a government letter was seen by markets as reinforcing expectations the central bank will refuse to move towards negative interest rates.
“Given the news flow, the chances are increasing that the RBNZ will not accept a negative OCR …,” ANZ Bank Chief Economist Sharon Zollner said in a note.
When asked about negative rates, Orr said the RBNZ was operationally ready to implement them, if needed.
The RBNZ pumped NZ $ 28 billion into the banking system this month raising concerns that this will further inflame housing prices already heating up due to historically low interest rates.
Orr defended the bank’s move to stimulate the economy, saying housing has been a longstanding issue for policymakers, but the alternative is rising unemployment and more uncertainty as COVID-19 continues to affect the economy globally.
“The economy has proven to be one of the most resilient on planet earth. So it’s a fantastic result, “said Orr.
(This story corrects irrelevant words in the title)
Reporting by Praveen Menon; Edited by Tom Brown and Sam Holmes