* Housing added to RBNZ remit, but not mandated
* RBNZ needs to define housing impact on a regular basis
* Consideration was given to debt-to-income ratios and interest-only mortgages (Adding to the back, comments from the analyst and director against)
WELLINGTON / SYDNEY, Feb. 25 (Reuters) – The New Zealand government on Thursday urged the country’s central bank to consider the impact of its monetary and monetary policy decisions on house prices, a move to help settle the country’s red-hot property market.
Finance Minister Grant Robertson said the Reserve Bank of New Zealand (RBNZ) must pay attention to government policy on more stable house prices.
“Today’s news is just the first step in the government’s consideration of wider advice on how to cool the housing market,” Robertson said in a statement. “We know that the rapid increases we have seen in recent months are unsustainable, which has led to many first-home buyers struggling to get to market.”
The government’s remit is short-lived in imposing a new monetary policy target on the RBNZ, a move that RBNZ Governor Adrian Orr initially warned against at the end of last year when the government introduced the idea first.
Orr had argued that adding housing to the bank’s mandate could make monetary policy as effective and affect the efficiency of the financial market, adding that monetary policy alone could not correct the housing problem .
Orr on Thursday welcomed the remit, which takes effect from 1 March, saying monetary and monetary policy was one of “many effects on house prices.” He also stressed the monetary policy committee targets – maintaining price stability and increasing stable earnings – remain unchanged.
Prime Minister Jacinda Arden’s government is under pressure to resolve the country’s housing crisis, especially after the failure of a notorious public housing program. Property prices have risen sharply in the last six months, due to a shortage of hard housing and a low interest rate environment.
Like many central banks during a coronavirus pandemic, the RBNZ has pushed interest rates to record lows, discounted mortgage lending loops and pumped NZ $ 100 billion ($ 70.4 billion) into a quantitative discount program.
These measures, while giving impetus to the economy, have stimulated unprecedented housing market momentum. In its latest forecasts, the RBNZ sees house price inflation rise to 22.4% by the middle of this year, well above the November forecast of 7.9% for the year to June.
POLICY TEACHING
The New Zealand Dollar peaked since August 2017 after the government’s announcement, as it reinforced the idea that monetary policy would tighten further. Yields on New Zealand government ten-year bonds hit 1.82%, the highest level since May 2019.
“By focusing on housing, the Reserve Bank could be more proactive in meeting its inflation and employment target … this would mean a tighter monetary policy than expected in the short term , ”Said Westpac chief economist Michael Gordon.
Direct impact on the housing market itself was less likely, Gordon said.
“What will bring house prices down is higher interest rates,” said Gordon. “It’s still cheaper to borrow now that it’s been around for many decades.”
Under the change, the RBNZ will maintain autonomy in how its decisions take account of potential housing outcomes, but must regularly explain how it has considered housing market outcomes. .
The bank must also have regard to the government’s aim to support more stable house prices, including by reducing investor demand for existing housing stock to help improving affordable housing for first-time home buyers.
The RBNZ said it was looking into the government’s request for advice on implementing tools such as debt-to-income ratios and interest-only mortgages. (Reporting by Renju Jose and Praveen Menon; editing by Jonathan Oatis, Rosalba O’Brien and Jane Wardell)