” Almost seven years after the onset of the Global Financial Crisis, central banks are increasingly operating in uncharted waters.” RBNZ Speech 04/15
Our economy heads into envious territory with growth and low inflation as Graeme Wheeler is left gazing at the clouds on the horizon. One of these which could rain on the parade happens to be the Auckland housing market. Great for current home owners but a little concerning for the stability goals of the Reserve Bank.
A couple of points made by the Governor seems to leave room for our low rates to hang around a bit longer. Our apparently overvalued currency is due to some factors including: “primarily investors have been attracted by the broad strength of the economy and our higher interest rates.”
Inflation seems a little less upbeat “expect inflation to increase and move back towards the middle of the 1 percent to 3 percent target band, albeit more gradually than previously anticipated”.
There is obviously concern about the housing market specifically in Auckland and Christchurch which would have traditionally pointed to higher rates. “Our focus is mainly on the Auckland and Christchurch markets as they represent around half of the national real estate market”
Auckland may be more of a concern than Christchurch. “Resolving the housing shortages is key. In Christchurch this issue is expected to be resolved, albeit with longer delays than originally anticipated. In Auckland, much more needs to be done, especially in creating opportunities for residential construction in Auckland central.”
There is some indication that there could be more thought about this by the Reserve Bank as more data is on hand such as the REINZ data in March.
Conclusion
There seems to be two conflicting goals for the interest rates to tackle alone. Putting rates up too quickly could hurt the economy which is started to gain some ground; this could be kick in the guts for exporters dealing with a high NZD and lower dairy payouts and not ideal with soft inflation. Low rates does however add fuel to the rocketing housing market in Auckland and Christchurch.
Maybe to steer our economy through these two hazards the brave Governor will have to dig into his tool kit of macro prudential tools. We have seen the workings of the low LVR tools but there are a few others. All the macro prudential tools here
We wonder if there maybe some which could be tweaked to tackle the Auckland market alone, such as the “Sectoral Capital Requirements”.
“Adjustments to sectoral capital requirements would require banks to hold extra capital against a specific sector or segment in which private sector credit growth is judged to be leading to a build-up of system-wide risk.”
All though using new tools may create its own risks it should allow the bank to keep its rates stable for a longer period.
This article has been written by Hamish Patel, mortgage broker with mortgagesonline.co.nz. Ph: 09 625 4693, Mobile: 021 625 693, hamish@monline.co.nz
The Governor Keeps a Steady Hand
” Almost seven years after the onset of the Global Financial Crisis, central banks are increasingly operating in uncharted waters.” RBNZ Speech 04/15
Our economy heads into envious territory with growth and low inflation as Graeme Wheeler is left gazing at the clouds on the horizon. One of these which could rain on the parade happens to be the Auckland housing market. Great for current home owners but a little concerning for the stability goals of the Reserve Bank.
A couple of points made by the Governor seems to leave room for our low rates to hang around a bit longer. Our apparently overvalued currency is due to some factors including: “primarily investors have been attracted by the broad strength of the economy and our higher interest rates.”
Inflation seems a little less upbeat “expect inflation to increase and move back towards the middle of the 1 percent to 3 percent target band, albeit more gradually than previously anticipated”.
There is obviously concern about the housing market specifically in Auckland and Christchurch which would have traditionally pointed to higher rates. “Our focus is mainly on the Auckland and Christchurch markets as they represent around half of the national real estate market”
Auckland may be more of a concern than Christchurch. “Resolving the housing shortages is key. In Christchurch this issue is expected to be resolved, albeit with longer delays than originally anticipated. In Auckland, much more needs to be done, especially in creating opportunities for residential construction in Auckland central.”
There is some indication that there could be more thought about this by the Reserve Bank as more data is on hand such as the REINZ data in March.
Conclusion
There seems to be two conflicting goals for the interest rates to tackle alone. Putting rates up too quickly could hurt the economy which is started to gain some ground; this could be kick in the guts for exporters dealing with a high NZD and lower dairy payouts and not ideal with soft inflation. Low rates does however add fuel to the rocketing housing market in Auckland and Christchurch.
Maybe to steer our economy through these two hazards the brave Governor will have to dig into his tool kit of macro prudential tools. We have seen the workings of the low LVR tools but there are a few others. All the macro prudential tools here
We wonder if there maybe some which could be tweaked to tackle the Auckland market alone, such as the “Sectoral Capital Requirements”.
“Adjustments to sectoral capital requirements would require banks to hold extra capital against a specific sector or segment in which private sector credit growth is judged to be leading to a build-up of system-wide risk.”
All though using new tools may create its own risks it should allow the bank to keep its rates stable for a longer period.
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