Will RBNZ go back to toolbox?

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A resurgent Auckland property market may prompt the Reserve Bank to reach for another macroprudential tool, economists say.

Tuesday, December 9th 2014, 12:00AM

by The Landlord

The loan-to-value restrictions introduced at the end of last year were designed to shore up financial stability and reduce the risk to banks from the threat of a house price collapse.

They prompted a large drop in turnover but over recent months there have been indications that the market, particular in Auckland, is picking up again.

While there had been speculation that the LVR limits could be lifted at the end of this year, there have now been suggestions that more tools may need to be deployed.

As well as the loan-to-value restrictions, the Reserve Bank has access to other macroprudential tools: Adjustments to the core funding ratio, a countercyclical capital buffer and adjustments to sectoral capital requirements.

Westpac chief economist Dominick Stephens said: “All together, the prospects of the RBNZ loosening the high LVR limit any time soon are dim. In fact, we have to seriously consider that the next move on macroprudential policy could be a tightening, not a loosening. That wouldn’t necessarily be a tighter LVR limit, although the only other housing-specific tool in the kit is higher bank capital requirements for home loans, which would probably take some time to phase in.”

Jane Turner, of ASB, said the bank’s economists expected the LVR limits to remain in place until the middle of 2015, with the potential for more tools to be introduced.

“Auckland housing market pressures had started to ease slightly following the introduction of high-LVR lending limits and 100 basis points of OCR increases by the RBNZ. However, in recent months, the trend in weeks of inventory has reversed and conditions in the Auckland market have started to tighten again.”

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