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New Zealand government asks RBNZ to include taming red-hot housing in remit, NZ$ jumps

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The New Zealand government has asked the central bank to consider factoring house price stability as part of its broad monetary remit, Finance Minister Grant Robertson said, boosting the local dollar on market bets of less stimulus over the next year.

[WELLINGTON] The New Zealand government has asked the central bank to consider factoring house price stability as part of its broad monetary remit, Finance Minister Grant Robertson said, boosting the local dollar on market bets of less stimulus over the next year.

As policymakers grappled with soaring house prices and the risk of a property bubble, Robertson said the government was reviewing housing policies, and had written to the Reserve Bank of New Zealand (RBNZ) asking what it could do to help slow a property boom.

The New Zealand dollar jumped to US$0.6985, its highest since mid-2018, as the government move reinforced expectations the central bank will resist moving toward negative interest rates next year.

Mr Robertson has proposed including stabilising house prices as a factor for consideration in the remit when formulating monetary policy.

"I am concerned that the recent rapid escalation in house prices, and forecasts for this to continue, are affecting the government's ability to meet the economic objectives set out in the remit," he said in the letter to RBNZ Governor Adrian Orr.

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"I am also concerned about the potential that these price increases may present a financial stability risk to the economy, particularly when monetary policy returns to more normal settings."

Mr Robertson's letter comes amid growing pressure to restrain the booming property market, and calls from the opposition party to "rein in" the central bank.

BOOMING PRICES

While the RBNZ pumped another NZ$28 billion into the banking system this month, raising concerns this would further inflame the housing market, it also looking at reintroducing mortgage lending curbs that it took off after Covid-19 slowed economic activity.

Historically low interest rates, along with other monetary and fiscal stimulus to support a pandemic-hit economy have fired up New Zealand's housing market, wrong-footing many economists who had expected a slowdown.

Westpac Bank said last week that it now expects house price inflation to peak at 15 per cent by June 2021, and prices to rise 13 per cent over 2021 as a whole.

"With an extended period of low interest rates, and some time before housing supply can catch up with demand, now is the time to consider how the Reserve Bank may contribute to a stable housing market," Mr Robertson said in the statement.

"Undertaking this work is not to suggest the Reserve Bank bears responsibility for house prices, but simply that it should have regard to something that is influenced by monetary policy."

REUTERS

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