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RBNZ targets house prices

The new Reserve Bank Governor must increase the OCR if house prices rise rapidly, even if inflation is on target.

Friday, September 21st 2012, 11:06AM

by Susan Edmunds

Finance Minister Bill English and RBNZ Governor-Designate Graeme Wheeler signed a new Policy Targets Agreement (PTA) yesterday. The Reserve Bank Act states that the Governor is accountable for maintaining price stability.

Westpac chief economist Dominick Stephens said there had been a couple of quite significant changes compared to the PTAs that prevailed under Alan Bollard.

“In our judgement, the balance of these changes amounts to a “tightening” of the definition of price stability. This is a real break from previous PTA renegotiations, which have tended to loosen the definition of price stability and give the Governor more latitude.”

He said this would lead to higher interest rates. “The RBNZ will have to pay more attention to rising house prices, and the tighter inflation target [of 2%] will be tougher to hit when the Canterbury rebuild reaches full swing. In the long run, this should help keep average interest rates lower over a full economic cycle, because inflation expectations may be anchored at a lower level.”

Under the last PTA, Bollard was tasked with keeping inflation between 1% and 3% on average.  In the early part of his tenure, Bollard often let it rise towards 3%.

Wheeler won’t have that option – he will be required to focus on 2%.

Stephens said:  “Graeme Wheeler commented that this will better anchor inflation expectations, and we tend to agree.”

A key change that will affect property investors is that he will have to monitor asset prices.

The RBNZ will be required to increase rates if there is a housing boom and drop them if prices fall.

Stephens said: “Were this PTA in place last decade, the RBNZ would have been able to hike interest rates earlier in response to the house price boom, which we think would have produced better results.”

He said Westpac supported the changes.

“The experience of last decade taught us that asset price cycles can be dangerous and central banks should combat them early. We also support the extra focus on the middle of the Reserve Bank’s numerical inflation target. In the past, both actual inflation and inflation expectations have tended to drift towards the top of the Reserve Bank’s target range, rendering the lower part of the band redundant. In effect, the new PTA has reduced the speed limit for inflation from 3% to 2%. The long-run result will be lower interest rates over the course of the economic cycle, due to lower inflation expectations.”

« OCR to stay flat for at least a yearIs the home loan battle moving? »

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.79 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.79 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 ▼8.09 ▼7.59 ▼7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 ▼9.09 ▼8.59 ▼8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.29 7.32 6.65

Last updated: 28 March 2024 9:42am

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