Economists: Further restrictions on lending likely, but when?


Economists say the Reserve Bank is likely to introduce new measures to curb the Auckland property market. But there is no agreement on when those changes will occur.

The Reserve Bank (RBNZ) has today issued its six-monthly Financial Stability Report, without unveiling any new plans for further lending restrictions.

It warned that the risks to the New Zealand economy have increased due to factors like rising house prices and lower dairy payments.

The RBNZ says Auckland house prices are picking up and are high compared to incomes. It says it is "monitoring developments" to see whether new measures will be needed to take the heat out of the market.

ASB Bank predicts the RBNZ will soon introduce new restrictions for the Auckland market.

ASB Chief Economist Nick Tuffley says: "It will likely take a few months of housing data before the RBNZ is confident in its assessment of the Auckland housing market. But, given the market trends, we think it is likely that Auckland house price gains will prompt the RBNZ to act in coming months."

The RBNZ's report says house prices are not as far out of line with incomes in the rest of the country. So Mr Tuffley says: "Any future tightening up of loan-to-value ratio (LVR) restrictions is likely to be Auckland-focused rather than nationwide."

He still believes the RBNZ will make two cuts to the Official Cash Rate this year, in June and August. But he says it is possible the cuts could come "at a slower pace".

However ANZ's economists have taken a different view about the RBNZ's plans for changes to the lending rules. They say the RBNZ "doesn't appear close to announcing anything in the short term".

ANZ's research note points out that the RBNZ seems "relatively confident" that its LVR restrictions have had some impact and reduced the amount of lending that can be considered risky.

In ANZ's view: "We don't see today's statement as meaningfully altering the risk profile for the monetary policy outlook. While it is still our forecast, we feel a June cut remains a line-ball call."

The economists at Westpac say the report "does not give a strong sense of where macro-prudential policy might head from here".

They note the RBNZ mentioned "increased supply" as the solution to high house prices.

Westpac's economics team believes house prices will continue to rise, so "we still expect a further macro-prudential tightening in some form by year-end".


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