Labour's policies would encourage borrowing

Expect more heat in the property market if the Labour Party gets its way and makes the changes it’s proposing to the Reserve Bank Act.

Tuesday, April 29th 2014, 9:54AM

by Susan Edmunds

The party’s finance spokesman, David Parker, revealed this morning that it would broaden the Reserve Bank’s objective to include helping to achieve a positive national external balance, encourage it to use its tools to help exporters and homeowners and introduce a variable savings rate, to allow the Reserve Bank to alter KiwiSaver savings rates as an alternative to increasing the official cash rate.

KiwiSaver would be compulsory and the Reserve Bank would be encouraged to increase compulsory contribution rates during periods when heat needed to be taken out of the economy, and decrease them during downtimes.

BNZ chief economist Tony Alexander said it would probably only have a limited impact on interest rates because the bank had no information about how people would respond.

He said rising interest rates took money out of people’s pockets that would never be returned. But if it was their savings rate that was rising, they might not feel the same need to cut back on spending, knowing they'd get the money back eventually.

“They may just pay off the mortgage at a slower rate and repay it when they get their KiwiSaver money at 65.”

But he said if the change did have the desired effect of reducing interest rate volatility, it would encourage borrowing.

“If you’re thinking about borrowing, you’re going to feel safer.  It acts as an incentive for people to borrow more.”

Homeowners would stay on floating rates, which would boost bank profits. Banks make a higher margin from floating rates than they do from fixed.

Investors would also get a boost, he said. “Reduced interest rate volatility, and a lower average level would add an extra incentive for investors to purchase property, prompting a worsening of housing affordability.”

ANZ’s Cameron Bagrie said any impact on interest rates would likely be at the margins because the policy seemed unworkable. “This has got ‘political bunfight’ written all over it. Good luck getting this one in… do we want the Reserve Bank playing around with KiwiSaver?”

« Economists predict up to three more hikes this yearLow equity lending running at half speed »

Special Offers

Comments from our readers

No comments yet

Sign In to add your comment

© Copyright 1997-2020 Tarawera Publishing Ltd. All Rights Reserved