May 16, 2021


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New Zealand asks central bank to consider housing in policy decisions

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New Zealand will force its central bank to examine the effect on the housing market before making monetary policy decisions, as Jacinda Ardern is criticized for failing to boost financial supply and affordability.

The disputed instruction, which some economists say would undermine the independence of the Reserve Bank of New Zealand, was initially challenged by the bank and pushed up government bond yields.

But changes to the remit of the RBNZ Monetary Policy Committee will require it to consider policies related to a house prices, the government said Thursday.

Grant Robertson, New Zealand Minister of Finance, said the committee had retained its autonomy but that “the bank will have to take into account the government’s objective of supporting more sustainable house prices, including by curbing investor demand” .

The intervention pushed the New Zealand dollar up 0.2% to 74.49 cents US, its highest level since August 2017, with investors betting the RBNZ would tighten monetary policy sooner than expected. Yields on 10-year New Zealand government bonds hit their highest level since May 2019. Bond prices fall when yields rise.

The decision did not change the objectives or mandate of the RBNZ, which are to maintain price stability, support full employment and promote a healthy and stable financial system.

However, some economists have expressed concern about government intervention.

“Using the ‘government policy’ and ‘government targets’ phases in relation to house prices risks infringing on the independence of the RBNZ,” said Cameron Bagrie, founder of Bagrie Economics, a research firm.

“They should just have said house prices should be a consideration, an explicit mention of what’s already going on. I think linking it to government policy / goals goes too far.

Rabobank warned that there was a risk that the instruction would force interest rates to rise, even though parts of New Zealand the economy was in trouble. This would underline how ineffective the central rates tool was when trying to target activity in different sectors in a globalized economy, the bank said in a note.

The RBNZ said it welcomed the directive issued by the government, noting that the goals of its monetary policy committee remained unchanged.

But central bank governor Adrian Orr said last year that housing was already considered by the bank when making decisions and fiscal policy was best placed to tackle housing demand when the changes were first proposed by the government.

Ardern was reelected by a landslide last October, but critics said it broke promises to tackle a housing crisis. Prices rose 19.3 percent during the year through the end of January.

Sharon Zollner, chief economist at ANZ New Zealand, said the government and the RBNZ appeared to have found “common ground” that could resolve the deadlock on how best to deal with price inflation. housing.

But she added that there were no easy answers to stimulating the economy and raising inflation expectations while battling soaring house prices.

“The tension between monetary policy goals and financial stability goals at the moment is the most extreme that I know of,” she said.

The government has agreed to consider a request from the RBNZ to introduce debt-to-income ratio limits on loans – a tool Wellington had previously rejected because he feared it would make it difficult for first-time buyers to climb the housing ladder.

Grant Duncan, associate professor of policy at Massey University, said the government and the central bank were trying to “pass the buck” on housing affordability.

“There is no doubt that the emergency measures of the RBNZ to stimulate the economy are pushing up house prices. . . but ultimately it is a problem of housing supply, ”he said.

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