LVR limits won't affect OCR yet: ASB
Loan-to-value speed limits may be having an effect on first-home buyers, but they won’t be enough to push back an official cash rate rise early next year, ASB says.
Monday, October 21st 2013, 5:00PM
by Susan Edmunds
The bank has released its latest Quarterly Economic Forecast, which says the economy is recovering and is on track to hit 3% growth next year.
Chief economist Nick Tuffley said Auckland in particular was being buoyed by the housing market.
As of this month, banks must restrict their low-deposit lending to no more than one in 10 new loans.
The Reserve Bank had said that depending on the success of the new LVR rules, they could lessen the need for interest rate increases.
But Tuffley said ASB was still expecting the OCR to move up next March. Loan-to-value speed limits would make a bit of difference at the margins, he said, but it would not be enough to change Reserve Bank interest rate strategy.
The Reserve Bank would look at interest rates in terms of the inflation outlook overall, he said. It would not raise the OCR just because the LVR speed limits weren’t working, unless the wider inflation picture required it. “They would be reluctant to put rates up just to cool the market off if the rest of the economy was not ready.”
Similarly, the Bank would not push out rates hikes just because of the activity in the housing market.
He said it was hard to know yet what impact the LVR restrictions were really having. Sales data seemed to show no impact but anecdotal evidence indicated first-home buyers were finding things tough.
Tuffley said supply constraints would continue to push up house prices. “The long-term solutions involve making housing supply more responsive, cheaper, and freer of unnecessary hurdles.”
And there’s no sign of a significant let up yet – the latest migration figures show a strong surge in net migration.
He said that was partly driven by falling unemployment in New Zealand at the same time as rising unemployment in Australia, which would encourage more Kiwis to stay here and those in Australia to think about coming home.
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