Academic journal article The Reserve Bank of New Zealand Bulletin

Loan Restrictions Could Help Maintain Stability

Academic journal article The Reserve Bank of New Zealand Bulletin

Loan Restrictions Could Help Maintain Stability

Article excerpt

27 June 2013

The current overheated housing market is a threat to future financial stability and the Reserve Bank is seriously considering the use of macro-prudential tools to help moderate house price inflation pressures.

Macro-prudential policy is intended to be used as needed, to reduce significant but transitory risks affecting the broad financial system.

"With some slack still in the economy, housing cannot yet be described as a threat to overall inflation. Higher interest rates are not the right policy response at this time," Deputy Governor Grant Spencer said in a speech today to Business New Zealand.

While limited house supply is at the heart of the problem, strong demand supported by easy credit is underpinning the rapid escalation of house prices, Mr Spencer said.

New mortgage approvals and loans have been growing at a faster rate and are now comparable with the pre-GFC peak levels.

"The new macro-prudential policy framework has been developed to address just this kind of macro-financial imbalance. The Reserve Bank is therefore seriously considering the use of macro-prudential policy," he said.

The four potential macro-prudential instruments included in a Memorandum of Understanding between the Reserve Bank and the Minister of Finance all work in quite different ways to reduce financial system risk. …

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